Donald could give us the next buying opportunity
It was a busy week on 19th to 23rd September with both US and Japan central bankers expressing their latest monetary policy. US Central Bank did not increase interest rate in September FOMC meeting and the market now expects a December rate hike. Japanese Central Bank made it clear about its determination to maintain zero interest rate policy. It sent Nikkei 225 from 16,492 on 20th September to 16,809 on 21st September, 1.9% higher, and Japanese Yen actually strengthened from 101.85 to 100.39. Financial Institutes are getting used to negative interest rate in Euro, so zero interest rate is not that scary. Global stock markets have put on a great run since Brexit and further upside from here could trigger profit taking. Many speculators are probably looking for opportunities to offload and the market friendly outcome from Japan and US central bankers meetings helped. European stock markets had a good run from no monetary tightening and FTSE 100 and Eurostoxx 50 were up 3.0% and 3.3% from close on 16th September to 23rd September. US market was actually lagging with 1.1% movement in S&P and 1.2% in Nasdaq in the same period.
HSBC has put on a good run since Brexit and its share price went up from GBp454.45 (23rd June) to 574.48 (23rd September), up 26%. HSBC shares buyback, downsizing and de-globalization helped. In the same period, Barclays, Lloyds, RBS, Deutsche Bank, Santander share prices moved -7.8%, -21.2%, -27.1%, -28.0% and -4.8% respectively. Comparing these European giants to their US competitors, Goldman Sachs, JP Morgan, Citibank and Wells Fargo share price movement were 8.6%, 5.8%, 6.4% and -3.8%. Banking stocks in general are not expensive in terms of valuation but the future is still dark. The regulatory risk and cost could be brutal.
Apple share price had some luck with better than expected iPhone 7 launch and Samsung's nightmare with the Note 7 battery. Samsung Note 7 disaster could mean a shift from high end Android users to Apple. As a tech stock, Apple is trading at relatively reasonable valuation. Apple Pay could actually be a wild card and it has launched in China already. User comments have been positive. Apple share price was USD 112.71 as of 23rd September, beating April high at USD 112.1, still far away from USD 133 2015 high print.
Twitter announced it has put itself up for sale on 23rd September and its share price rallied 21.4%. Smart move. Better to let go while there are takers than hanging on like Yahoo. The social media space is hot but the investment in technology and competition for talents are stressful battles. Competing against facebook and Google social media portfolio is more than a tall order. Twitter itself is probably at a cross road, to acquire or to be acquired. Already, market mentioned Salesforce.com, Verizon, Microsoft and Google have shown interest to buy Twitter. Verizon just bought Yahoo. Google could turbo charge Twitter with its Chrome, Gmail, Google map, YouTube, Google Play, Google search and Android all with over 1 billion users.
With rate hike concern out of the way until December, the spotlight moves to Donald Trump versus Hillary Clinton. It looks like it is going to be a real tight race between them. Maybe as tight as George W Bush and Al Gore. If Donald Trump leads the poll, the market may panic and post a significant correction. This could be a good chance to buy. Looking at the market since the Global Financial Crisis in 2008, buy on big dip has been a good trade. The US and European stock markets are at high level as global companies are still growing. The tech stocks like Amazon and ARM, the retailers like Zara and H&M, the pharmaceutical companies have made up ground for the financial and resources sectors. The central bankers are printing money to make up for the deleveraging in the financial sector. Someone must be benefited from the low interest rates. Picking the right sector, right stock and right timing need a lot of luck. Index Funds especially Exchange Traded Funds on FTSE100, Eurostoxx 50, S&P 500, Nasdaq are convenient instruments to capture market movement. Another asset that everyone is familiar with is property. Property prices in London, Paris, Zurich, New York, San Francisco, Hong Kong and Shanghai have certainly reflected that there is plenty of money chasing hard asset. The Central Bankers have been using money supply as a universal solution to deflation and recession. Negative to zero interest rate, quantitative easing, drop money from helicopter, all with the purpose to get money moving. Whether the next US president is Donald or Hillary, the tricks are the same. Obama launched Obama care, Donald may favor the construction sector as he builds a wall between US and Mexico. Hillary may benefit the IT and security sector as she needs a more powerful email system with better encryption. The reality is that US is run by a complex system consists of different political parties, the parliament, the government, layers and layers of organization and bureaucracy. If Donald wins, US politics will surely become more entertaining and lead to more coverage in social media. The world will goes on and the money printing machines are likely to continue.
