Bull market or bear market rally? This is just very confusing. While data points in the west (US new home sales continue to be very weak, mortgage delinquency rate for the first quarter 9.12% from 7.8%) is not improving (albeit less bad), we are seeing encouraging recoveries in this side of the world. Chris Wood’s guess remains that the equity market countertrend rally will continue for now into the summer months. And the main driver will be the continuing need for professional fund managers to increase beta. Plenty of cash on the sidelines.
Where to invest? Asia remains the prime area where new money wants to invest. The main driver in Asia is China. Taiwan’s Capital Links story and India’s much better than expected election results certainly helped. Afterall, this is where all the growth going to be. It is almost impossible to envision sustainable growth in the west. You only become wealthier by making things you can sell to others. You dont become wealthier by consuming on credit. Its like telling a man not to worry about drinking too much as long as he is getting fatter at the same time.
Barton Biggs recently argued that many analysts call this just a bear-market rally, which has about run its course and should be sold. Instead, he believed that this is a cyclical bull market within a broad trading range, which means prices could go up another 10 percent to 20 percent. There will inevitably be periodic cyclical bull and bear markets to torture us (the bull side is less torturing, though).
A high beta market like Indonesia is a great place to seek beta. The market here is still very much under owned and under researched (even with CLSA Indonesia research team working super hard). Being a resource economy, this is one of the most leveraged markets when inflation returns. Obviously, we at the sales desk are a big inflation bull. (Remember history tells us that equities markets and commodities have an inverse relationship)
Meanwhile crude-oil futures continue to rise, moving above $65 a barrel for the first time since early November after inventory data showed U.S. inventories fell for a third straight week as the nation imported less oil and as demand for gasoline picked up. Crude inventories declined by 5.4 million barrels vs. much smaller consensus (150K) barrels. Coal and CPO plays will be well bid on the back of this.
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