Evidence-based Investing

1Q16 Macro: Some breathing space for now

talkcockbotakchek888
Publish date: Tue, 05 Apr 2016, 11:04 AM
talkcockbotakchek888
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A driver and a mate drives their big car to the city one day. As they are climbing the mountain, the car stops working and is going backward. The mate quickly gets down to look for stone to stop the car from going back but couldn't find it. The mate signals to the driver that he can't find any stone, and the driver also signals to the mate, pointing to his head, saying, use your head... The mate misunderstands him and puts his head under the car tyre to stop the truck. Yes, use your head mate!
Following Message
CUT LOSS ON YOUR EXPORT COUNTERS, TIME TO SAILANG O&G AND PLANTATION STOCKS!! That's probably something that you will come across on i3investor at the moment. Yes, the exporters have indeed taken a beating as USD depreciates against all major currencies which then pushes up the commodity prices. But what's the fundamental reason of the recent USD setback? No, nothing fundamental — it's largely due to the dovish sentiment expressed by US Federal Reserve chair Janet Yellen, lifting stock markets and emerging markets.
 
The rate-hiking cycle, which began in Dec 2015, will continue well into 2016, albeit at somewhat slower pace. If you look at the Bloomberg US Dollar Spot Index, USD has been in range bound territory for the past one year after surging more than 20% in the previous year.
 
Despite Yellen's cautious stance, US economic data has so far indicated that US housing market is still booming on improving job market and higher disposable incomes after years of paring down debts by US households since 2008 subprime crisis. The recent patch of USD weakness is unlikely to last, especially when the Fed starts signaling its readiness to hike rates again in 2H16.
 
The greenback, in my humble opinion, will remain in a bullish multi-year supercycle as the hawkish US will continue to tighten while Europe, Japan and China continue to ease to combat the fragile sub-par growth and the disinflationary pressures. Due to the uncertainty and recent volatility in markets, investors might want to overweight cash for the time being, but positively this has also created once-in-a-decade opportunities for long-term investors to buy high-quality assets at attractive prices. Guys, please stay calm and keep a cool head =)
 

 

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