2013 and the year of Snake 4 January, 2013

2013 and the year of Snake  4 January, 2013

Congratulations to the world that the US government managed to steer the world economy away from the fiscal cliff.  How?  In short, buy a bit of time and worrying about it later.  Well, tax the rich more to show a gesture.  Just like any Hollywood action movie, the ending of a cliff hanging scene is only the beginning the next life threatening situation, the debt ceiling.  US government should not be issuing debt forever to fund their deficit.  There is a ceiling or a legal limit to US debt, some unimaginable number of USD 16 trillion.  If the ceiling is not raised around March, the mighty United States may not have enough money to pay for the bills.  The S&P 500 index put on 13.4% in 2012.  If you count the dividend, take into consideration USD has gone weaker against GBP,that is still 10.8% return in GBP terms.

The Euro zone is a parallel theme going on in 2013.  Despite all the drama, the Euro zone stayed together and the media has stopped mentioning Grexit.  Spain and Italy will still offer plenty of headlines while France is the next big worry with not so healthy balance sheet.  In 2012, Euro leaders show they really will do whatever it takes to maintain the single currency and the market is getting convinced.  Or at least it will take years rather than months to see it coming.  2012 turned out to be a great year for the European stock market with Eurostoxx 50 Index offering 16.3% total return (price performance plus dividend income) in GBP.  Who could have guessed the Eurostoxx 50 could beat US S&P in 2012.

China has its new leadership in full swing and the year of Snake is a year of settling and then progress.  Global demand is likely to be slow in 2013 and China continues to become more expensive as a manufacturing center.  However, the stock market might have priced in too much bad news and if you look at the Shanghai Exchange Composite Index, Santa loved China and the index rose from 1949.5 on 4 December, 2012 to end the year at 2269.1 points.  That’s a 16.4% rally within December and more importantly, like Chelsea winning Champions League last season, Shanghai Exchange Composite Index managed to give a +2% total return to investors in GBP terms.  So all the “China Down” and negative views were denied by the stock market performance.  Or perhaps the stock prices already priced in an even worse picture.

Apple, on the other hand, took a downhill run in Q4 2012 from USD 705.07 as of 21 September 2012 to end the year at USD 532.17.  Ops, that’s a very cold shower for iPhone 5.  Again, perhaps the expectation was too much and we did not expect Samsung Galaxy S3 and Note 2 to be so popular.  There are quite a lot of investors keen to get into Apple at USD 500 a share.  At 11 times 2013 expected earnings, that’s quite reasonable and it is the low end of estimated Price Earnings ratio that we have seen in the past 3 years.

Coming back to home, FTSE 100 had an amazing start of 2012 and closed at 6,027.37.  Nice to be above 6,000 again and that has been the top end for FTSE 100 since 2009.  It is hard to convince retail investors to buy stocks with the index at 6,000 level.  So who are the buyers in the market.  If it is not the ordinary salary people, then it could be the ordinary people in an un-ordinary seats such as fund managers, traders, Chief Investment Officers of Pension Funds.  Why do they buy at this level?  (1) it is not their money but other people’s money.  (2) they need to buy something and bonds have rallied so much that there is limited upside.  (3) sitting in cash is not really what they get paid for.  See, we have to be more understanding.  Sometimes, one has less choices than others think.