If US stops printing money, we all suffer. 24 June 2013

If US stops printing money, we all suffer.  24 June 2013

On 19 June, Bernanke hinted that the central bank could slow its USD 85 billion monthly asset-buying program.  Stock markets all over the world took a dive.  The US stock market benchmark S&P 500 Index dropped 5% in 4 business days breaking the 1600 level for the first time since 2 May.  FTSE 100 said goodbye to 6400 level and reached the doorsteps of 6000 level.  As of 24 June, FTSE 100 dropped 12.3% since its 6875.62 high on 22 May.  6,000 level was last seen at the beginning of 2013.  Eurostoxx 50 and German DAX took similar paths and dropped 7% and 6.5% in 4 business days after Bernanke’s comments.  Billions of pounds disappeared from the stock markets.  Gold suffered as well. It dropped below USD 1300 level.  China completely fell out of bed with a 10.2% drop from 18 June closing to 24 June closing. 

With such gesture from FED, for sure, there is no further QE (Quantitative Easing) and the current program will be in reverse gear.  It is just a matter of time.  The slowing down of bond purchases by the central bank is like your credit card limit gets cut but you are living off it.  Imagine your household in Canary Wharf costs GBP 8000 a month.  Suddenly, you are limited to GBP 6000.  It is not a simple switch from Waitrose to Tesco.  It means you cannot spend on anything other than necessity.  The market reacted violently and institutions are dumping asset.

The currency world also went yo-yo on Bernanke’s comments.  British Sterling went through a month of correction in May falling from GBP 1 to USD 1.56 level almost touching USD 1.50.  Sterling did great in the first half of June recovering all the losses in May and reached USD 1.5752.  Bernanke’s comment on 19 June triggered a sharp drop from USD 1.567 to USD 1.549 in the early morning in London.  As of 24 June, GBP 1 was at USD 1.543.  Sterling to Euro has been relatively stable since April.  Range bound between GBP 1 to EUR 1.16 and EUR 1.19.  The range has been further tightened between EUR 1.16 and EUR 1.18 in June.  The spotlight is on Japanese Yen that strengthened from JPY 100.72 to JPY 93.79 (per USD 1) range in the first half of June. After Bernanke’s comment, it eased back at USD 1 to JPY 97.6 level.

While USD has been strengthening across all major currencies after Bernanke’s comments, the US Treasuries bonds are getting sold off.  US 10 years treasuries yield has increase from 2.129% at the end of May to as high as 2.538% on 24 June.  In price term, it dropped from 96.62% to 93.15%.  Strengthening in USD and falling in bond prices could reflect overall money withdrawal from the bond market.  This is not switching from Dollar bonds to Euro bonds.  It is taking out cash straight from the financial system.  If you know your biggest customer, US FED, is going to reduce its shopping spree, you will reduce your inventory in all products.

Back to FTSE 100 blue chip stocks in the home market, EasyJet is the winner in the first half of 2013, up 58% year to date as of 24 June.  Up 46%, Persimmon, a residential property developer, is the runner up.  The second runner up is another airline, International Consolidated Airlines Group that owns British Airways and Iberia. It is up 37% year to date as of 24 June.  Who could have guessed that in a weak economy, airlines are the leaders of the pack?  Meggitt and Rolls-Royce, suppliers of parts and engines for planes, are the 4^th and 8^th best performing stock at +31% and +29% respectively.  At 6^th place is Travis Perkins, a distributor in building and construction supplies and materials, the stock is up 30% year to date.  BT, ITV and William Hill ranked 5^th, 7^th and 9^th with 30%, 29% and 29% return in 2013 so far.  Holiday, new houses, home entertainment, a few games and putting a few quid behind your team, it seems the “family” theme is winning so far.    The losers in FTSE100 are skewed towards resources stocks.  Tullow Oil, Glencore Xstrata, BHP Billiton, Petrofac, Eurasian Natural and Rio Tinto are down 20-30% year to date.  Randgold, Anglo American (a global mining company), Antofagasta (a copper mining company) are down 30-35%.  Fresnillo stood out at falling 52% year to date with a worrying drop from 2033 pence at the end of November 2012 to 887.5 pence on 24 June.  Worth mentioning Eurosian Natural was already in the losers list last year with over 50% drop.  Resources are likely to struggle in weak economy especially with China economy stalling.

Bernanke looked at the QE switch and the world shivered 24 May, 2013.

Bernanke looked at the QE switch and the world shivered 24 May, 2013.

Ben Bernanke and his FOMC members are hinting that they may slow down buying US debt.  Not turning the tap off completely but pumping less liquidity into the system.  In technical terms, this is a slowdown in quantitative easing (QE).  As the Federal Reserve (Fed) buys bonds from the market, it pays the sellers money hence pumping money to the system.  A lot of these bonds are issued by the government.  United States are practically buying back their “I Owe You” piece of paper using Greenback that they print.  The Greenback is real money that can be used to buy food and water.  If the Fed slows down their buying of debt, there is less Greenback in the system and may have a negative impact to economy.  Since the Global Financial Crisis in 2008, the US has been using QE to save the world.  The trouble banks are busy reducing their balance sheet and debt through deleveraging and sucking money out of the system.  To counter that, Bernanke has been throwing money at the market through buying bonds and debts with real money.

We saw QE3 in September 2012 that got Fed to buy USD 40 billion of bond a month and QE4 in December 2012 to increase the purchase to USD 85m a month.  These 2 QEs super charged the US stock markets to historical high.  It was mentioned in this column before that QE is like steroid.  It helps you to punch above your weight but long term usage will damage your health and its effectiveness will decrease with time.  Ben Bernanke and his team start to think now is the time to reduce dosage as US.  Dow Jones Industrial was the first to made new high in March 2013 and the boarder S&P 500 Index made new high on 28 March.  With both indices beating the 2007 peaks, it is time for Ben Bernanke to reduce dosage.

One potential outcome of slowing QE is further strengthening of US Dollar against the world currency (Euro, Sterling, Japanese Yen) and even gold.  It is a good idea to see the economy improving with less dosage of steroid.  Investors are concern that this may mean weaker earnings in companies and the next day Nikkei 225 index dropped by more than 7%.  The biggest drop since the earthquake in March 2011.  It puts a big dent to the 70% rally in a year.  Money looks for safe heaven and many people find themselves parking in USD and US Treasury. 

There is another angle to explain the strength of USD.  If you put yourself into the shoes of some big hedge fund managers, especially the global macro funds.  These are the big picture guys and they use the most liquid instruments to express their view.  In the currency world, there are a few currencies that one can move a few billions of dollars without waking up anybody.  These are USD, EUR, JPY and perhaps GBP.  To a lesser extent, gold as well.  Most funds have short EUR for years already on the back of the Euro crisis.  However, this is a very obvious trade and everyone does it.  This is what people called over crowded trade.  The Euro crisis has turned into an on-going concern.  Most hedge funds needs big and sharp move to make a killing.  Remember when Soros attached GBP in 1992.  The attack in GBP in the first quarter of this year sent GBP from USD 1.63 to USD 1.49 on the back of UK credit rating downgrade.  The big winnings come from the JPY move.  It was JPY 80 to USD 1 in November 2012 and in May 2013, JPY 103 to USD 1.  Thanks to Abenomics.  In May, gold was the victim and it dropped from USD 1474 to USD 1360.  So far, every attack is betting on USD strengthening against the other side.  It looks like the hedge fund managers have completed a round.

In the stock market, institutional money has also gone to developed markets like US, UK, Germany and Japan.  Germany, despite being in the heart of Euro zone, its stock market is also making new high.   This reflects two things.  Firstly, hot money has limited choice with bond yielding so low.  Secondly, institutional investors should be having the biggest smile since 2007 with both bond market and stock market rallying.

It does sound too good to be true.  Here comes the big question.  Is it time to take profit in the stock market?  Remember Warren Buffet once said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.  If everyone around is greedily buying stock, it’s time to get out.  Oppositely, if people are not convinced or neglecting the market, the bull train may have a few more stops to go.

To gold or not to gold 27 April, 2013.

To gold or not to gold  27 April, 2013.

“Should I buy gold?”

“Is gold going to fall below USD 1,300 per ounce?”

“When will gold price go back to USD 1,900?”

Many investors are asking these questions.  Gold price dropped by almost 10% on 15 April to USD 1,355.5.  It was a real shock to investors because gold price was at USD 1,600 level at the end of March.  What happened to all the good reasons to buy gold?  Hedging against inflation?  Euro crisis?  Korean peninsula tensions?  USD and JPY money printing machines?  So what caused the drop?  Some said Cyprus could be forced to sell gold and other cash strapped European countries might follow.  Some blamed it on China weaker economic data.  Well, we can all find reasons after the event.  Put yourself into the shoes of a fund manager.  You have been buying gold since Financial Crisis in 2008 and sitting on a reasonable profit.  Gold does not pay dividend or interest coupon and had a zigzag year in 2012.  Fortunately your stocks and bond portfolio have been performing.  With US stock market still at historical high level, US government and corporate bond prices in strength, some institutional investors are putting more money into stocks and bonds to follow the trend.  Gold price which had been falling since October 2012 from USD 1790 level, lost the heart of some institutional investors.  Considering gold price was below USD 700 for a little while in 2008 and had an amazing run to Sep 2011 to almost USD 1,900, the recent correction to USD 1,355.5 is at a halfway point of the upward slope created by the rally.  The bulls and bears battling in the midfield seem to be retail investors versus institutions.  In China and Hong Kong, there are consumers rushing to the jewelry store to buy gold bars.  On the side of the planet, the biggest gold ETF SPDR Gold Shares experienced nearly USD 13 billion of outflow this year and overall holdings in gold exchange traded products fell by 340 tons.  The selloff in gold ETF in such size reflected overall institutional investors pulling money out of gold. 

The British Pound recovered from March dip and rebounded to USD 1.545 for a pound on 26 April.  A touch above its 50 days moving average and completed a technical rebound.  Let’s consider that factors that could affect GBP/USD movement.  British economy is and will continue to be at a weaker state of health than US.  The UK financial sector is at best not getting more sick.  Euro zone is still a burden, not a gift.  There is one aspect where UK could par with US.  Both US and UK governments are likely to print more money.  Recently, we see a fair amount of media coverage on debt to GDP ratio.  In short, some very clever people said it is bad for a country to borrow too much money versus its economy and the measurement is the debt to GDP ratio.  Some leaders religiously believe this argument and stand firm about austerity measures.  There is another camp of very smart people and they said high ratio of debt versus GDP (say more than 90%) could be managed and question whether austerity is a solution to Euro crisis.  The world has gone around the sun 5 times since financial crisis and the Euro zone is held together by shoe strings.  Austerity measures are definitely not a quick fix and the patient is still dying.  People are now worried if the patients could survive long enough for austerity to work.  What is the point to take a drug that gives the patient so many side effects that would kill the patients before it could cure?  Come back to GBP USD.  The weakening of the School of Austerity means more capacity in money printing.  The US government is still printing dollars faster than it could pay debt while the two political parties bargain over details such as tax and healthcare policy.  The UK government will have a new banker Carney in town on 1 July.  Will he use an axe or scalpel to tackle recession? If he follows Abe-nomics, the pound could be happily sliding.

FTSE 100 Index which reflects the UK stock market, spent April yoyo-ing between 6200 and 6500.  Similar to US market holding on to a relative high level historically.  Going forward, FTSE 100 could be benefited from a weaker GBP and further rally in US stock market.  Most of the companies in FTSE 100 index are global companies like SABMiller, Rio Tinto, Vodafone and BP.  They will react more to global economy than to UK domestic economy.  So don’t get fooled by the depressing local news.

No Greed, Just Fear. 23 March, 2013.

No Greed, Just Fear  23 March, 2013.

Imagine you get a text from your bank, “Dear customer, in order to save the world, there will be a 10% tax on any money you withdraw from your bank account.”.  Even the Hollywood horror movie could not match Cyprus’ lawmaker script.  There is no safe place but a gold bar under your mattress.  US Dollar, Japanese Yen and British Pounds are printing money to be ahead in the currency war and keep their currency cheap.  Most of US, UK and Japan debt are in their own currency so as long as the politicians are willing to sacrifice a few trees and not to hang the parliament, these big boys will not go bankrupt.  But their currency should fall and lead to inflation.  The Euro crisis has become the tiger on the boat with Pi.  You just have to get used to it and you may even miss it if it disappears.  However, please remember the tiger could be erratic and attack your deposit.  With bank deposit rate low and inflation visibly painful, people with deposit are losing purchasing power every day.  Borrow to buy asset sounds greedy but that’s what makes sense on paper.

Many people are predicting the end of the bond rally.  Media, experts, fund managers comment the corporate bonds are yielding too low for the risk.  But the bond buyers and borrowers are happily together.  Investors are buying ketchup company bonds.  H J Heinz sold USD 3.1 billion bonds at the lowest coupon on record for junk bond.  Heinz is paying 4.25% annual coupon for 7.5 year and the company is B1 rated by Moody’s.  Perhaps the corporate bond rally will slow and some lesser credit worthy bonds may even fall in prices, but there are plenty of demand for bonds from institutional to high networth individuals.  They know their money is at risk in corporate bonds and they are going in with their eyes open.  That’s better than having your money in bank deposit and have a surprise one day.

The British Pounds have been falling like a rock since Moody’s downgraded UK and kicked it out of the AAA league last month.  GBP started the year as high as GBP1 to USD 1.6381 and printed USD 1.4832 on 12 March.  That’s a 9.5% drop.  It regained some ground and bounced back to USD 1.5230 on 22 March.  This is the lowest since June 2010 but still significantly higher than GBP 1 to USD 1.3503 on 23 Jan., 2009.  With US market looking strong and Europe looking dull, GBP could repeat its pattern in March to June 2010.  Rebound until 50 days moving average which is currently at USD 1.545 level and then dropped again to USD 1.4231 which is the low on 20 May, 2010.

EUR is at a cross road.  It started a rally from its low in July 2012 when it touched EUR 1 to USD 1.2043 and posted a beautiful rally to reach USD 1.3711 on 1 February, 2013.  Good job Draghi for this 13.9% rally against USD!  Then Berlusconi’s potential return knocked EUR down the ski slope and gave up half its gain to USD 1.299 on 22 March.  With the noise on deposit tax, it is hard to imagine any rich daddy and mommy still keep their cash in Euro zone.  Hence a good reason for money to goto bonds even the yield is getting low.

There is also money going into US stock market and Dow Jones made new historical high.  The US stock market took just 6 years to recover and excel.  And Europe got a heart attack from Cyprus.  Who is healthy and who is unfit?  The UK stock market with the help of the GBP weakening, also posted a nice rally in Q1 until the bulls got a cold from Cyprus.  FTSE 100 broke the 6,000 level in the first trading day of the year and January was a great month for stock investors with FTSE 100 rallying from 5897.81 to 6276.88, up 6.4%.  The 6,400 resistance was conquered on 5 March but lost on 21 March.  Many retail investors missed the rally and wonder if it is too late to get in now.  The general feeling is “yes” as experts are saying corporate earnings have been good but run out of upside going forward.  So the good time is over although most people did not even notice.

Missing the boat is better than getting on the wrong boat.  The gold lovers have been struggling since October 2012 when Gold was USD 1796.08 an ounce.  It went down to USD 1555.13 on 21 February, 13.4% lower.  Then zigzagged back to USD 1,600 level.  The world is looking for yield and unfortunately, Gold does not pay dividend nor coupon.

I can see why money goes to bond.  Nothing beats Heinz baked beans.

How to win the Currency War? 23 February, 2013.

How to win the Currency War?   23 February, 2013.

The music has stopped and this time, EU has stolen the chair from the UK.  The media, economists and hedge fund managers are now saying Sterling should be weaker due to a sleepy economy, broken banking system and a no way out government budget. Sterling has been falling from USD 1.6293 before Christmas to USD 1.5131 as of 22 February.  That’s a 7.1% drop which is a fair amount even compared to USD/JPY 11.9% drop in the same period.  What does this mean?

Let’s look at the weakening of Yen as an example.  The Japanese Prime Minister Shinzo’s Abenomic campaign is asking for a weaker Yen and lucky him, he got exactly what he asked for.  Abe has learnt a few tricks from Helicopter Ben in US and Draghi’s “Whatever it takes” tactics in Europe.  A weaker Yen has injected steroid to the Japanese stock market and Nekkei 225 went up from 10,000 level to 11,400 level.  Hang on, Nekkei 225 is in Japanese Yen which has weakened against USD by more than 11% and GBP by more than 4% in the same period.  So for those who invested in Japan Fund, the Japanese is laughing, the British is smiling and the American is unmoved.

In a Currency War, governments or Central Bankers try to weaken their own currency to improve their export competitiveness and “earn” foreign money.  A trick that the West has accused the Chinese for a decade to turn everything in their household “Made in China”.  Or if you look closer to home, the weaker Euro since Financial Crisis has helped German car makers to dominate the world.  (But why not the French car makers?)

A weaker currency to a country is similar to an individual worker accepting a salary cut.  It will make the individual more attractive to hire assuming he has competitive skills.  For a product or a skill that is non competitive, a discount may not be enough.  So Toyota car going on discount may make consumers choosing them over Volkswagen.  But Fujifilm offering a discount on its old stock is unlikely to convince digital camera users to buy film.

Will a weaker Sterling improve UK’s economy?

Should be good for Harrods, Selfridges and other tourists driven business, a weaker Sterling could mean more customers.  Not great for foreign workers in UK as their Sterling is now worth less at home.  ASDA will be tempted to increase wine prices as these wines are imported from Europe, US or Australia.  A side effect of a weaker Sterling is inflation.  The Government has already safe guarded property market to make it punishingly expensive for foreigners to buy luxury properties.  Unfortunately, the bread and butter for everyone is likely to get more expensive.  If a weaker Sterling does not create job, it is likely to hurt the unemployed and the retired.

For those who do not need to worry too much about the bread and butter, but have Sterling saving or asset such as property or gilts, they have to either hope their Sterling investment return can beat inflation or they could consider getting out of the Sterling.  Switching to US Equity Fund from Sterling investment is pivoting move, hoping for the US stock market to go up or at least outperforms Sterling against US Dollar.  If one’s Sterling investment is not possible to sell such as investment in SIPP or ISA, trading Foreign Exchange to long US Dollar and short Sterling to cover the notional value of the Sterling investment is an efficient hedge.  Please consult your financial advisor or bank on such Fx transaction.  If you have not traded leveraged Fx before, maybe you do not want to start.

Since the financial crisis, the American, European and Japanese central bankers are all printing money and distorted the bond and foreign exchange market.  Sending bond prices up and swinging Fx.  More importantly, the hedge funds all focus on liquid assets and government bonds and currencies perfectly fit the bill.  Hedge Funds’ herd action may have exaggerated market trend in both speed and magnitude as we have seen in the sharp fall of Yen and Sterling against US Dollar in the last 3 months.  Currency War between the big boys (US, Europe and Japan) is a round the world roller coaster ride that eventually goes back to where you start.  One cannot erase nor conquer the other.  But the ride could be years or decades as we have seen since in EUR from its date of birth to today.  For most people, it is not about making money from Fx swings but to survive them.  Business that import goods in USD, EUR and JPY, and sell in UK to earn Sterling are used to deal with the currency roller coaster.

Many people ask if they should buy Gold as its price has fallen to below USD 1,600 per oz.  My personal view is that Gold has become more of a tool for investment portfolio diversification but not a very effective hedge against inflation.  Many investors are looking for yield (coupon from bonds or dividend from stocks) and Gold does not offer that.  Another asset class that we need to get more cautious is the High Yield Bonds issued by corporates and government from Emerging Markets.  These bonds have rallied a lot in the past 2 years and got to the point that the coupons they pay may not justify the risk for the bond holders.  It is hard to be a happy investor but with bank deposit yielding nothing, investing is becoming a compulsory hobby.

Global stock markets versus Apple 26 January, 2013.

Global stock markets versus Apple  26 January, 2013.

Good news is that major stock markets are all up.  Dow Jones Industrial Index, FTSE 100, Hang Seng Index are all making 4 years high.  US Debt Ceiling looks like a moving finishing line and turning into a political drama rather than a financial matter.  Wait until the rating agency shows US a yellow card for living on debt forever.  This could cause a wobble.  UK stock market has quietly outperformed its European peers.  If you ask UK citizens outside London, they probably struggle to understand why the stock market is so strong.  FTSE100 are dominated by global companies like BHP Billiton, Royal Dutch Shell, HSBC, Vodafone, BP that make money in many countries outside UK.  FTSE100 has little to do with domestic economy.  Hong Kong stock market has been turbo charged as institutional investors and media see upside in China stock markets.  Perhaps not so much because of China GDP growth, but a rebound after over 3 years of bear market due to lower valuation and lack of confidence in corporate governance.  Remember Paulson Fund losing USD 750m from their investment in Sino-Forest.  Anyway, the pendulum has swung back and institution money is flowing into ETFs listed in Hong Kong.  If trend is your friend, US, UK and Hong Kong could give you a ride.

Abenomics could be a catalyst to a weakening Japanese Yen.  Yen depreciates from JPY 78 to USD 1 in October to now hovering around 90 Yen to a Dollar.  That’s a 15% move in a major currency.  The weakest since mid-2010.  Investors expect a weaker Yen will improve Japanese exporters’ competitiveness and Nikkei 225 rallied from 9,500 level in the beginning of December to test 11,000 level in the end of January.  Abe Shinzo was Prime Minister from September 2006 to September 2007.  Since then, 5 people took the driving seat before Abe’s return.  Jose Mourinho left Chelsea FC in September 2007 and since then, 8 managers and Mourinho has not returned yet.  Between Obama in US, Xi Jinping in China and Abe in Japan, there is a clear favorite of who is going to leave the office first.  So Abe has to race against time and think out of the box to detour Japan from its 3^rd lost decade.  A weaker yen, a 24/7 money printing machine and 2% inflation are going to be painful to Japan’s aging population but in Abe’s eyes, necessary for the future generations.  There are institutional investors eyeing Japan market.  Is this just another season with high hope but no trophy like Arsenal?  Or a real game changer likes Manchester City?

An Apple a day, my money has chipped away.  Shocking.  When Apply launched iPhone 5, its share price hit USD 705 in September 2012.  It dropped to below USD450 after it reported record quarterly net profit of USD 13.1 billion.  Apple shares look very attractive at this level but the problem is that it already looked attractive at USD 600 in November and at USD 500 in December.  So the bargain hunters or value investors are getting run over by stop loss orders.  Again, if trend is your friend, this is not the right train.

Gold is going nowhere?  It has formed a downward zigzag trend since it tested USD 1,800 level in October.  It is at USD 1,660 level as of 26 January, 2013.  Gold as an inflation hedge maybe true but a rising stock markets have lured investor interest away from gold.  To hedge against inflation, perhaps property is a better investment.  Quite a few people have mentioned their recent investment in US single-family homes.  Buying them at distressed prices and collecting nice rental.  As yield seekers move in, prices of these single-family homes go up.  There are Real Estate Investment Trusts (“REITs”) focus on such investment.  Worth giving your financial advisor a call to find out more about REITs if you believe in mighty America recovery.

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.