Friday 28 February 2014

Why USA Federal Reserve insist of tapering ?


Graph of U.S. Treasury securities held by the Federal Reserve: All Maturities

Federal Reserve could be the most power organization on earth. And their news always appear in the front page. Federal Reserve insist to tapering QE despite poor data .




Federal Reserve on 2014-02-2014 is holding 2,278,256 Millions of Dollars US Treasure bond. And they are the biggest creditor to US government. And the number will continue to rise until end of QE. Another US$297,500 millions will be added. By end of Aug 2014, Federal Reserve could be holding US$2,575,756 Millions.


China ,the 2nd biggest creditor, which are holding around $1,300,000 millions of dollars. Their holding is far behind Federal Reserve.  In recent news, China Government are reducing their holding.

If QE never end, Federal Reserve would continue to buy bond. Other investors would suffer from falling exchange rate and very low return. It will discourage investors to invest in US treasury. Foreign fund would withdraw from bond market, USD exchange rate could collapse. Therefore Feberal Reserve have to end QE before it is too late.

With QE tapering, US exchange rate will rise. Foreign investors could be benefit in buying bond.

Data source http://research.stlouisfed.org/fred2/series/TREAST

 

Monday 24 February 2014

Stock Market may recover during report season

Today STI at 3110 in the morning. It open high and go lower.

I am expecting market may stay at present level. But go up in report season i.e. mid March. We have around 3 weeks from today. I hope to see good news from most big companies. I am expect the uptrend could last till end of April.

I buy and hold stock for 3 to 12 months. The uptrend could be very short. Therefore, I may not be interested to buy now unless with good stock value.

Olam outperform. And I sell my Olam stock yesterday to lock my profit. But I am still holding a lot of Olam warrant. If Olam go up further, I will continue enjoy benefit. It is hard to determine the reason behind Olam out performance. It could be covering short selling.

I like Olam warrant. They are almost 4 years before expiry. If Stock price rised another 20% within that period,  share price could reach $2. Absolute minimum Warrant price should be $2-$1.63 = $0.37. It should trading at S$0.5 to S$0.6.

     

Sunday 9 February 2014

2014 economic outlook

Global event -    USA recovering,
                           Europe crisis under control
                           Federal Reserve QE tapering
Regional event - Japanese VAT increase in April
                           Chinese are tightening their shadow banking and excessive liquidity
                           Regional asset bubble.


USA debate on debt ceiling again. Market are too tried to react on it. However, Japanese increase their VAT could be the most important event in 2014 H1. Japanese government plan to increase their borrowing by issuing more bond. However, their income is barely enough to pay for bond interest. Increase VAT may provide needy cash for interest payment and reduce public debt in long run

However,Japan’s VAT rate increase in 1997:Q2 from 3 percent to 5 percent is often cited as the main reason Japan fell back into recession in late 1997.
 
VAT increase also have impact on Japanese GDP (estimate -1% GDP). Japanese grow will be slowed down. And further impact on investors.
 
In August 2014, QE will be totally stopped. Asia and emerging market excessive liquidity will dry up. And investors were expecting interest rate will go up in 2015.

Investment climate will always under low pressure in 2014. However, 2014 could be best time to buy for longer term investors.

Friday 7 February 2014

Too early to pull out from Asia market

Happy Lunar New Year

My Q4 2013 was very busy but very profitable. I sold all my bank of China Share in Dec 2013. I increased my cash position before new year.

Markets went down since end of Jan 2014. The main reason was USA Federal Reserve were Tapering their bond purchasing program. Investor expect emerging markets' (EM)currency will devalue. And USA bond market will offer better return. Emerging Markets' both currency and stock marketing dropped.

Federal reserve's tapering is very  successful. USA 2yr bond rate is 0.32% today. Although Federal Reserve buy lesser bond, investors are withdrawing fund from Emerging Markets and USA stock markets to buy bond. In fact withdrawal from stock markets buy down bond interest rate.
 
Most important, Federal Reserve keep interest rate low before 2015. They will buy more bond to stop interest rate from going up.Inventors will soon find out stock market especially emerging market offer better return. Stock markets will drive up by fund reversing back from bond market.

Strategy

Dow Jones index 14500 shall be very good support.
i.e STI 2,800
    HSI 20,000

When stock market go down and getting closer to support level. I could start to buy stocks with good fundamental and dividend pay out e.g. Bank of China, Cambridge Reit and Sabana Reit.