Recently, I delivered a couple of seminars in Singapore for MyBank KE Securities. The outlook covered on the global glimpse and how it will affect Singaporean as well as Malaysian equities in coming months.
In broad aspects, we shall begin by taking a look at the world’s largest economy and streamline down to Asia. Starting from US’ economy, Federal Reserve’s new chairman had confirmed cutting the stimulus to the point of a full withdrawal by end of December.
In the coming months, we might see the US dollar index (USDX) gradually creeping up, causing global equities to plunge. In addition, US policymakers also stressed that interest rates would begin to rise when unemployment begins to fall below 6.5 per cent.
January’s unemployment was recorded at 6.6 per cent while the tracking of US’ 10 year bond yields to three per cent will soon see the hammering of stock markets in the second quarter!
China has been calling for a slowdown in purchasing managers index (PMI) over months though the trade balance is still making gains. The independent agent Markit who compiles the PMI for HSBC has seen stagnation for five months. Though trade balance is increasing from exports, the average annual gross domestic product (GDP) growth was hovering at 7.7 per cent in 2013 and has been dropping from 11.9 per cent since the first quarter (1Q) of 2010.
Japan, as the third largest economy in the world, is facing huge challenges ahead.
The country is suffering from debt-to-GDP ratio of 211 per cent as of 2012 and it is still swelling.
Japan has been suffering from a recession since the early 1990s and has never recovered from the slump.
Prime Minister Shinso Abe incepted his bold stimulus and deepened the deficits since last year to devalue the yen for triggering exports.
However, little have been improved in the nationwide inflation at 1.3 per cent annual rate when the data is still far from preset target two per cent.
In the coming April, the implementation of new rise in sales tax in Japan from current five to eight per cent will likely wane confidence of many investors as it is believed this will pull down consumer spending.
If no further stimulus is announced to cover this market fear in April, we foresee the yen to begin rising, which would push the US dollar to Japanese yen below 100 benchmarks again. Then, the carousel of deflation will start to revolve again.
Dar Wong is the principal consultant of APSRI. The expressions are solely his own. He can be reached at [email protected].