Long Sterling and long Europe have been a safe journey.

Long Sterling and long Europe have been a safe journey.

With all the drama about Greece, UK election and FIFA, long GBP and long UK or Europe stock markets turned out to be a good trade in first half of 2015.

Eurostoxx 50 is up 14.3% in 2015 as of 22 June.  Performers are banks and exporters in general.  Top 10 performers are all up over 20% year to date.  Banks like ING, Intesa Sanpaolo, SocGen, Unicredit are in the top 10 while Banco Santander, number 4 from the bottom, is down three percent in price year to date.  ING is up 41% year to date as of 22 June.  Inditex (Zara fashion chain), LVMH, Daimler are also in top 10 to reflect the better business activities in the consumer and luxury segments.  Airbus tops the leader board with 46.7% return year to date as of 22 June as everyone seems to be flying more these days.  Among the top 10 losers, there are some household names like Siemens which is up 3.1% and Nokia is down 0.9% year to date.  Another interesting contrast is Deutsche Telekom up 22.0% while Deutsche Post is down 0.2% year to date as of 22 June.  More texting than writing is the norm.  Postal service needs to tie up with eCommerce giants like Amazon to be part of the supply chain.

FTSE 100 is up 4% year to date.  Property developers have done well.  Long Property Developers stay away from miners has been the winning theme.  Taylor Wimpey, Barratt Developments, Persimmon are all among top 5 performers this year.  Mondi that does paper packaging ranks second with 36% return in 2015 as of 22 June.  Schroders, a fund manager, and Hargreaves Lansdown, the Independent Financial Advisory Group also give over 22% return to their shareholders.  The resources sector is a struggle in general.  Miners like Rio Tinto, Glencore and Fresnillo are down 8%.  Anglo American is the worst performing stock in FTSE with 17% negative return and we still have 6 months to go in 2015.  In the oil and gas sector, BG Group is getting bid from Royal Dutch Shell.  BG Group is up 26.4% and Royal Dutch Shell ‘A’ is down 13%.

In US, there is no simple pattern scanning across the household names.  Netflix, the online TV/Movie content provider who also produced House of Cards, provided 98% return and top the chart in Nasdaq 100 stock index.  Electronic Arts, a game provider, Amazon and Starbucks were up 42%, 41% and 31% year to date respectively.  Walt Disney, Apple, Boeing, Goldman, Nike, JP Morgan, Pfizer are up 10-21% year to date.  Coca-cola, Johnson & Johnson, Du pont, Travelers, Exxon Mobil, Chevron, Intel, Procter & Gamble, American Express, and Wal-Mart are the bottom performers among the 30 stocks in Dow Jones and they are down 4% to 15%.  The worst performing stocks in Nasdaq 100 stock index include Whole Foods Market, Yahoo, Wynn Resorts are down 18%, 19% and 32% respectively.

Currency wise, Sterling holders have had a steady and safe ride.  GBP against EUR has gone up from 1.29 to 1.40 as of 19 June, 2015. The high print was 1.42 on 11 March.  Since March, GBP versus EUR has been range bounded between 1.34 and 1.41.  GBP against USD started the year at 1.56, weakened to 1.47 in April, rebounded to 1.59 on 19 June.  GBP against AUD started 1.91, dipped to 1.84 in January and reached to 2.04.  GBP against JPY started at 186.51 and at 175.87 in April, reached 195.26

Gold started 2015 at USD 1184 per onze, peaked on 22 Jan at USD 1302 and zigzagged to USD 1202 on 18 June.  Gold prices came off in 2012 from USD 1780 level and have been depressed since then.  2014 rebounded to test USD 1400 level.  One may expect institutional investors may switch to hold gold on the back of Euro zone crisis and the potential Grexit.  Maybe institutional investors rather hold USD, CHF and GBP then gold.  If Grexit happens, “Cash is King” could be the right strategy.

Crude Oil began the year at USD 53.27 a barrel, slid to USD 43.66 on 16 March, bounced gradually to USD 60.45 on 18 June.  Crude Oil is at USD 60 level now and it is probably equal chance to see Crude Oil price back to USD 80 before year end or test USD 40 again.  We could see both.  Last June, Crude Oil is above USD 100 a barrel.  Who could have guessed Crude Oil could slide so much.

First half of 2015 should have been a good six month for UK investors.  GBP as a currency has appreciated against EUR, USD, AUD and JPY since the end of last year.  Stock markets across the world have performed.  Gold is small up couple of percentage point year to date and oil prices have rebounded more than 10% in 6 months.   This is excellent results in the midst of potential Greece default.

Grexit and Brexit

Grexit and Brexit

Greece has to pay the International Monetary Fund (IMF) its next loan installment in June.  This is bad news for the country's coffer that is squeezing blood to pay government staff and pensions.  Greek Prime Minister Alexis Tsipras knew he had a difficult job since day one but it seems to be getting harder as time goes by.  He promised his voters a new start for Greece and reverses the austerity measures.  However, I do not know many people manage to ask their credit cards to waive the bills and Tsipras is no exception.  Tsipras certainly struggles to convince the German and the French leaders that whatever happened has happened and Greece can erase the past.  The imaginable positive results maybe the continuation of EU drip feeding minimal nutrition to avoid Grexit.  Time is against the Greek leader as its country fell back into recession.  There are more local businesses going bust than popping up.  Tourism is suffering according to the Association of Hellenic Tourism Enterprises.  Arrivals fell in top tourism destinations in April by 31 percent in Mykonos to 7 percent in Crete.  Depositors are leaving the Greek banks which discourage the banks to grant loans to individuals or small businesses.  The Greek economy is again in a downward spiral.  In April, Moody’s downgraded Greece’s government bond rating to Caa2 from Caa1 with a negative outlook.  Caa2 is many notches below Germany Aaa rating.

The voters supported the new government as they were tired of the austerity measures.  Policy changes that create pain would almost be contradictive to what Tsipras promised.  Pension reform, value added tax, staff cut in government or ideas that reduce government spending and people income are likely to cause public uproar.  Privatization of ports or other state owned business could lead to job losses and pension reform.  This is because new owners are likely to prioritize returns for shareholders over local employment and welfare.  Remember during Thatcher era, privatization of Cable & Wireless, British Aerospace, British Telecom and British Gas.  Can Tsipras’ government manage the same?  Realistically speaking, the way to recovery for Greece is painful and long but doable.  EU does not want a Grexit.  EU cannot set the case of waiving the debt as it could be a bottomless pit.

Grexit has an impact on Euro and many analysts have mentioned parity to the US Dollar.  Both in March and April, we saw EUR 1 to USD 1.05.  Just when everyone was holding their breath to watch USD 1 to EUR 1, a rebound in May clicked USD 1.115 to EUR 1.  Parity between USD and EUR is possible with the uncertainty ahead.  Even Swiss Francs had to let go of the falling Euro and the US Dollar has no affection against Euro.  There are other catalysts for Euro to go lower and let’s look at a couple.  First is Brexit and second is Chinese Yuan joining the SDR.

The Conservative Party has won the election and David Cameron is putting EU membership to a vote by 2017.  British citizens will vote for whether the Great Britain should leave the EU.  “Brexit” if EU does not give GB some flexibility in EU policies.  While Cameron has not detailed his “shopping list”, the Conservative Party’s election manifesto and Cameron’s speeches have mentioned fewer barriers to trade inside EU, having the power to block EU laws, stricter control over EU migrants.  It is hard to imagine a Brexit and UK may not be better off outside EU.  However, similar to the Scottish Independence Referendum, this gives a fair arena for voters to express their views and there are possibilities to either outcome.  If Grexit happens before this Brexit vote, the odds could tilt.  GBP has gathered strength against the USD after Cameron’s victory and rebounded back to 1.55 to 1.58 level (USD 1.58 to GBP 1) in May.  This is similar level to November and December 2014.  GBP against EUR has been zigzagging between 1.35 to 1.41 in March, April and May.  Brexit has complicated GBP EUR relationship and it could end up being a lose lose situation.

International Monetary Fund’s Special Drawing Rights (SDR) is an exclusive collection of global currencies that form a special reserve asset.  Currently, the asset consists of USD, EUR, JPY and GBP.  IMF reviews the composition of the basket every five years and China is hoping the Chinese Yuan can join the club.  If this happens, Central Bankers are likely to add CNY to their reserve which means reducing the weighting of the four currencies that are currently in the basket.  Many people said CNY should not be included as it is not an open currency that could be bought and sold freely in the market.  One could also argue that China’s huge size of economy and trading activities with the rest of the world could justify CNY to be a special breed.

When the American bull meets the Chinese dragon

When the American bull meets the Chinese dragon

The British Pound was sliding down in March against US Dollar.  After a rebound in February from USD 1.506 : GBP 1 to 1.544, Sterling against the Dollar dropped to 1.482 at the end of March.  On 10 April, a low was reached at USD 1.463 : GBP 1.  9 months ago on 10 July 2014, the GBP USD exchange rate was 1.713.  The British Pound has weakened by 14.6% against USD in 9 months.  Why?  It is easy to blame it on Greece and the money printing policy by European Central Bank.  Also need to give US a round of applause as the mighty Dollar is gaining across the board as FED tighten up their monetary policy and looking at increasing interest rate.  Will GBP keep falling against the USD?  There are some fund managers starting to take profit on the long Dollar story.  So perhaps there will be technical rebound in GBP against the Dollar.  With the UK election poll looking indecisive between the Conservative and the Labour, GBP should be choppy and could have more downside.

Chinese stock market daily turnover reached GBP 193 billion (CNY 1800 billion) on 20th April.  The Shanghai Shenzhen 300 index has gone up 120% in one year.  Yes, it is not a typo, 120%.  Over 30% gain since the beginning of this year.  Most of the stock names will sound very foreign to the western world.  Ping An Insurance, China Merchants Bank, China Vanke (property developer), Kwei Chow Moutai and Wu Liang Ye (these two are Chinese vodka makers).  Maybe easier to buy ETFs or funds that track the Chinese stock market.  Let’s learn more about the Chinese dragon.

Every netizen in China knows about BAT.  BAT stands for Baidu, Alibaba and Tencent.  Baidu is the Chinese Google.  Alibaba is the Chinese Amazon.  Tencent is Chinese Whatsapp and an online game giant.  Funny enough, BAT are not listed in China.  Baidu and Alibaba are listed in US.  Tencent is listed in Hong Kong.  Baidu is up 33% in a year but the share price actually came off from USD 250 level to USD 210 since last November. Baidu is a USD 74 billion company versus Google USD 377 billion as of 24^th April 2015.  Alibaba (stock code is BABA) was listed last year at USD 68 in September last year and reached USD 120 in November.  Similar to Baidu, BABA share price has gone south and now to USD 80 level.  BABA is a USD 203 billion company versus Amazon USD 181 billion.  Tencent share price is up 51% in 1 year and it is currently 20% higher than its November peak.  It is a USD 194 billion company versus Facebook USD 233 billion.  Looking at these numbers, the Chinese BAT can put up a good fight against the American FAG (Facebook Amazon Google).

“One Belt, One Road” means China President Xi Jinping’s plan to develop the Silk Road Economic Belt.  Building roads, railways, ports and other infrastructure projects to develop a modern version of the Silk Road.  To come up with the investment, China led the formation of Asian Infrastructure Investment Bank.  It is kind of a World Bank with an Asian spice.  The market expects a lot of money will be poured into this plan and this is one of the trigger points of the China stock market rally. 

The Chinese dragon sent a fire ball to Hong Kong after Easter and Hong Kong stock market recorded HKD 252 billion (GBP 22 billion) on 8 April breaking all turnover record in the last bull run in 2007.  The Hong Kong Exchange and Shanghai Stock Exchange launched HongKong Shanghai Connect last year which allow investors from either exchange to access the other.  Mainland China investors can buy Hong Kong shares through Shanghai Stock Exchange and the flow spiked up after Easter as hot money spilled over to Hong Kong.  Hang Seng Index is the benchmark index for the Hong Kong stock market and it is up 27% in a year, 18% year to date as of 24 April.  Considering Hong Kong went through Occupy Central last year, such performance in the stock market does not quite fit the picture of thousands of protestors camping on the main road.

15 years later, Nasdaq testing new high

15 years later, Nasdaq testing new high

 

Time is the best cure.  Some investors may remember the burst of the tech bubble in 2000.  At the time, people were talking about Microsoft, Intel, Oracle, IBM and bunch of drugs companies with a biotech kick like Amgen.  eBay, Priceline.com and Amazon.com are the few survivors while many dot com companies have been forgotten.  Nasdaq Composite Index crashed from 5,132.5 to in March 2000 to 3,042.6 in May 2000 and the Index drifted even lower to 1108.5 in October 2002.  No one had the mood to predict when the index could see 5,000 level again.  15 years passed and the US market has been going up for 6 straight years from 2009 to 2014.  Many analysts have tried to make the bear call and got run over by the bulls.  Nasdaq Composite Index has more than doubled in 5 years from 2,400 level to above 5,000 in March 2015.  While the index approached its peak, the troop is now very different.  The new kids on the block are Facebook, Tesla, Baidu and the newer and bigger Apple.  If one simply sat on their Nasdaq index fund since February 2000, they may have made 13.7% in 15 years including cash dividend which translates to 0.86% return per year.  The total return of QQQ, the most popular Nasdaq ETF listed in US is 204% since February 2005 and 156% since February 2010.  Investors could have learnt two lessons from the Nasdaq drama.  Buy and hold could mean a very long wait for very little if the entry point was badly timed.  Average buying or monthly installment could be a better strategy for long term investment.

 

Media have taken off the spotlight from Greece for a while and people have been focusing on the US Fed FOMC meeting.  The market generally expects US rate hike in June.  This is probably the milestone for the end of a 6 years rescue plan from the 2008 Global Financial Crisis.  With the USD going strong across the board and US stock market at historical high level, US have managed a perfect landing from the turbulence.

 

Many Wall Street experts are saying EUR is heading to parity with USD.  Chanel has cut prices of their handbags in markets outside Europe.  Chanel shops in Hong Kong and China were swept as price tags of the classic Chanel handbags were slashed by as much 20% in the local currency.  EUR 2000 black leather bags were sold out in a day and there were constant queuing outside the shop.  It was headline news.  Before Chanel, Patek Philippe also reduced prices in Asia by 15-20% in the local currency.  This is odd as the public was expecting a price hike from the Swiss maker due to Swiss Franc appreciation.  These are classic examples of the advantage of how exporters could be benefited from a weakening currency.  Bordeaux wine prices have been weakening in UK for couple of years already and they were probably the leading indicators of luxury market trend.  Euro zone would probably need to export their way out of this Euro crisis as domestic economy remains fragile.  Tourism will definitely help and one can notice there are more and more high-end retail shops and department stores with mandarin speaking sales staff to serve the 4 million Chinese tourists visited Europe in 2014.  This is similar to 20 years ago when shop keepers in Beijing learn English to greet the American and European tourists.  Will it take European stock markets 15 years to get back to its peak?  Eurostoxx at 3,700 and 5 years and 3 years performance are 63% and 62% respectively.  The historical high of 5,522.4 in March 2000 seems so far away.

 

China stock market was turbo charged in 2014 with a 52% rally after years of bear market.  The popular MSCI A50 index was up 1.8% and 30.7% in 5 years and 3 years in their local currency or 9.4% and 35.5% in GBP.  The Chinese government accepts a slower economic growth and target 7% GDP growth rate.  The government has changed its gesture since last year to a more accommodating monetary policy to cushion the struggling property and commodities sectors.  Please note that it is just a cushion to soften the impact to the overall economy due to the hard fall of these sectors.  Property developers, steel, iron, copper and coal business are still hanging dry and struggle to get loans from banks.  Their funding rates are generally over 10% per year while the underlying asset prices are also falling.  India stock market is a star performer among the BRIC countries and its stock market has gone up 33.4%, 35.9% and 41.8% in a 5, 3, 1 years horizon in GBP terms.  One efficient way to capture these markets is through mutual funds or ETFs.

The world is all about Greece again.

The world is all about Greece again. 

These days, there is more media coverage on Greece than the Oscar.  No one has the crystal ball and the outcome could be as surprising as Southampton’s performance in Premier League this year.  Stock market seems to be the winner so far with Eurostoxx 50 Index up 11.8%. Mainly thanks to the weak EUR.

FTSE100 is also performing and it is up 5.3% for the year as of 23 February.  Not bad in the mist of another Grexit episode.  Tesco is the best performing stock in the index.  The stock is up 27.8% so far this year.  This is a rebound story as Tesco share price was halved last year from 340p level to as low as 155.4p on 9 December 2014.  The correction in share price was mainly reflecting the expectation of poor earnings in 2015 which earnings per share is expected to be a third of 2014 according to Bloomberg data.  No one wants to invest in a future loser.  Somehow, the market believes the business is going to turn the corner in the future and Tesco share price started to rebound to 240p level.  If you look at Tesco share price past 12 months return including dividend payout, it is still down 24.8%.  It is a GBP 20 billion market capitalization company and a lot of wealth is created or destroyed as the share price goes up or down.

Mondi Plc, a packaging and paper company, also rallied 21.1% this year.  Building materials giant CRH Plc, publisher Pearson, fashionable Burberry Group are up 17.4-19.4% to occupy the top 5 spots of the ladder.  The worst performer is energy expert Centrica plc and even that is only down 10.2% year to date.  This reflects there was no big loser in the index in 2015, so far.

The currency world is probably easier to understand for a change.  The GBP has taken a leap against the EUR.  At the beginning of 2015, GBP 1 was EUR 1.27 and in February, GBP 1 can get EUR 1.36.  It was only March 2014 when a pound could only get EUR 1.19.  The Euro zone problem really has not been resolved despite the billions being printed.  The fundamental issues just got sweetened like an espresso with 2 sugars.  Could GBP EUR get back to 1.50 level as in 2006 before the global financial crisis?

EUR against the US Dollar is even more dramatic.  In May 2014, it was EUR 1 to USD 1.40 and on 23 February, it was EUR 1 to USD 1.13 which is a 19% depreciation in EUR in 10 months.  This is the steepest drop since the beginning of 2010 which was against due to Euro zone crisis.  Could EUR USD get back to 0.823 level as in October 2000? Or when will we see EUR 1 to USD 1.60 as in July 2008?  The latter seems like mission impossible at the moment but what if the weaker members have a peaceful exit and EUR becomes more like the good old Deutsch Mark?

Let’s look back at the 2000 era when Euro in coins and notes were first circulated in 2002.  At that time, there were a lot of unknown about the Euro.  If there is a Grexit, Euro zone could be back in time before Greece started using EUR.  The market would speculate who would be the next to give up using EUR.　Such uncertainty would be a big shock to the world and EUR could be first sold off due to the uncertainty.  However, EUR could rebound afterward as the stronger countries like Germany would weight more in the currency.  The swing might even reach the high and low of the past decade.  What does it mean for GBP?  GBP 1 was good for EUR 1.65 in 2001.  Back in 2001, it was GBP 1 to USD 1.40 which we actually saw again in January 2009 (GBP 1 to USD 1.35) after Lehman Brothers went under.  History could repeat although under totally different situations and circumstances.

The falling oil prices have found support around USD 50 a barrel.  In terms of magnitude of this massive drop from USD 100, this is the biggest since the USD 147 to USD 40 drop in 2008.  Oil prices were between USD 20-40 from 2000 to 2003.  Oil prices are volatile by nature and oil producing countries like Russia and Venezuela are selling oil to stay alive no matter at what price.  The fundamentals are so different now than ever with green energy development and human behavior such as the acceptance of electric cars.  If Apple really launches electric car in 2020 as rumor said, it will be a landscape change in the energy eco-system.

Gold prices have been hovering around USD 1,200 and USD 1,400 per onze in the past 12 months and to be fair, spending more time defending USD 1,200 level than challenging USD 1,400 resistance.  Gold, if you view it as an alternative currency, does not pay interest.  Swiss Franc now charges interest.  For institutional money that needs to get out of EUR and already max out on how much USD and CHF they could hold, gold was a good parking space.   JPY is not a trendy currency to own and GBP is not really as globalized as USD or EUR as a trade currency.  If US Fed increases interest rate in September 2015 or the commodities currency like Canadian Dollars and Australia Dollars reach bottom, money may leave gold again.

Swiss watches, Swiss holiday, Swiss banks

Swiss watches, Swiss holiday, Swiss banks

New Year surprise from the Swiss Central Bank caused an earthquake in the financial market.  It did the reverse of the Russian Ruble and Swiss Francs was up 20% then 40% against the Euro.  Currency brokers were right in the middle of it and some could not withstand the shock.  Alpari went under and FXCM needed a white knight.  Most banks were hurt with a scratch but the Swiss banks have a bigger problem which I will explain later.  The Swiss stock market dropped thru a crack and was down 14% at one point on 15 January.  It was not funny at all.

Most people think a currency from a developed country like Swiss Franc moved by 20% is a very very big Black Swan with tabby pattern.  It really is beyond imagination and certainly falls into the same category of rare events like England Soccer team winning World Cup.  Agree.  Looking at historical data, CHF last big move was in 2011.  It was EUR 1 to CHF 1.23 in July 2011, then CHF strengthened to EUR 1 to CHF 1.03.  Then the Swiss Central Bank declared brotherhood with the Euro and told the world they would sell CHF for EUR at 1.20.  People stopped going long CHF and short EUR.  That was a small Black Swan move.  So, looking back, we should have known it.  It is simple physics.  You can have a very strong container, like the will power of the Swiss Central Bank to be on the same boat as Euro.  But if you keep pumping gas into the container, eventually, this very strong container will explore in a very powerful way.  The weak Euro against USD had been a trend in second half of 2014 but this may not be the trigger of the event.  If I were a Swiss Central Banker, I probably could live with a weakening CHF which is just dragged down by EUR.  EUR, in any case, is still a very big currency backed by the European Union.  My biggest fear would be what if my assumptions were wrong which is not unheard for Central Bankers.  For example, the concept of EUR being the currency for European Union or the concept of European Union.  The recent political movement in Greece that revived the thought of Greece leaving EU or the EUR currency might have caused Butterfly Effect to Swiss Central Bank decision.  (Just to kill the speculation, I was not, am not and mostly likely will not be a Swiss Central Banker). 

Bang!  Everyone woke up with CHF rocketed against other currency.  Selfishly, first thing came to my mind was to change my ski trip from Davos to St Anton in Austria.  Then I thought maybe I should buy a Rolex before they increase the price in GBP due to labor cost in CHF.  Then I heard about Currency Brokers suffering from potential bad debt from client’s trading losses.  Logically, those Swiss companies who report earnings in CHF but make money in EUR or USD are in tears as their revenue is now taking a 20% discount when it converts to CHF.  Swiss banks, exporters like drug makers, engineering companies, luxury sectors are all making money offshore and reporting earnings in CHF.  Unlucky.  Swiss companies who borrow in EUR or USD are laughing.  I wish I had taken a EUR or GBP loan to buy Rolex.  As Swiss Franc deposit was not paying any interest, it is almost illogical to be investing in Swiss deposit or Swiss government bonds except for the big money manager who manages billions and need to diversify their currency exposure.  Or the hedge funds or traders who have patiently waiting for the container to explore.  A bit like Soros winning in the GBP in the 80’s.  History does repeat.

CHF will eventually clam down but there are casualties already.  Swiss Central Bank has said they would step into the currency market again if they think CHF is too strong.  Of course they would, they just did it.  But they have already set negative interest rate for CHF and perhaps they could make it even more negative.  This would be very interesting if one day Swiss Banks pay borrowers interest to borrow Swiss Francs.  One could earn credit from swiping their Swiss credit card.  Hard to imagine right?  That very big Black Swan in tabby pattern may have a friend around the corner.

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.