Where would the Grinch invest his money?

Where would the Grinch invest his money?

A quick snap shot on Christmas Eve. US market using S&P 500 Index as benchmark is up 16% year to date.  Nasdaq Composite Index that represents the technology sector is also up 16% year to date. The US market has been going up since Global Financial Crisis in 2008.  The bull market looked as if it was going to end with the Quantitative Easing in October this year but no, it came back like Iron Man 3 with more power.  The US market is definitely the super economic power in the world with a very cripple Euro zone.  Very cripple is a lot better than a total collapse which could be the case if Greece or even Italy and Spain had gone under.  Now that the Euro zone is intact but the broken economy is still the reality.  Euro Stoxx 50 has gone up 6% year to date which may give investors a good feeling.  EURUSD (how many USD to EUR 1) has dropped 12% from 1.39 in March to 1.22 level in December which has helped exporters in the Eurozone.  2015 could be a recovery year for the Euro zone if Euro could further weaken against USD and the lower oil price is also good news for manufacturers in general.

Oil at below USD 60 dollar is the cheapest in 5 years and it is a game changer.  Cost of living is lower and inflation pressure has gone down.  This means less reason for Central Banks in UK, US or Europe to increase interest rate.  Low interest is good for the stock market in general and could prolong the bull market in US stock market.  Russia and Venezuela are on the wrong end of the trades with the oil price correction.  Crude oil makes up 95% of Venezuela’s exports and analysts are talking about Venezuela potential default in 2015.  Venezuelan bonds were the worst-performing in emerging markets in 2014 and lost 30% in December.  The benchmark bonds due in 2027 were trading at 40 cents to a dollar.  Russian faced sanction from US and Europe over Ukraine issue and oil price collapse ruined Russia’s winning formula.  Russia Ruble collapsed in a perfect storm.  Russian Ruble was at USD 1 equals RUB 33 level in the beginning of January and USD-RUB depreciated from 44.8 on 24 November, 2014 to 67.9 on 16 December.  Followed by a sharp rebound back to 54 level as of Christmas Eve.  Russian stock market, represented by the MICEX Index, managed to show only 2.5% down year to date.  Russia interest rate was lifted from 10.5% to 17% in December to stabilize the Ruble and to increase the cost for hedge funds to go short Ruble.  Russia economy will probably still be in bad shape in 2015 as it is heavily depending on oil exports.  However, both the currency and some bonds have taken the hit and some brave investors may want to repeat their success in bargain hunting Italian and Spanish bonds.

Among the emerging markets, China is struggling to maintain 7% GDP growth.  To most people surprise, the Chinese stock market turned to a mighty bull in November and the Shanghai Shenzhen CSI300 Index was up 42.5% year to date as of 24 December.  Considering the index is still at 57% of its high in 2007, the China stock market is in a very different cycle when compared against the US stock market.  CSI300 index last had a similar rally was 2 years ago and it went through a very sleepy period while local investors focused on the smaller capitalization stocks.  Chinese stock market is very policy driven and after 2 years of tight monetary policy, the market is expecting government to use policy and their influence in State Owned Enterprises to drive GDP growth.

The UK stock market had an average year with FTSE100 only gaining 1.5% year to date and the last quarter of 2014 was a real roller coaster with FTSE100 making 10% dip twice.  GBP reversed its strong trend against the USD in July and GBP-USD dropped from 1.72 in July to 1.55 in December.  Blame it on the weak Euro zone and Ukraine crisis.  Banking and Resources sectors are likely to continue to be weak in 2015.  Perhaps a weaker GBP and low oil prices could simulate UK export, tourism and local spending.  2015 could be a stock picking year for UK stock market.