Once again, I was invited by HSBC for their bi-annual presentation of investment outlook. Lunch served was better than before. They served forest treasure parmesan with pear salad and berry compote, Cod fish fillet wrapped in parma ham with pumpkin risotto and warm bread pudding for dessert.
I always look forward to attending their luncheon because I enjoy listening to Arjuna Mahendran, head of Investment Strategy. He speaks eloquently and concisely. His every sentence is filled with insights into the market and strategies. But this time around, they got Jose Rasco to give some of his analysis and outlook on the U.S. market.
The following list is not complete but they were the ones that I remembered from the presentation. So I call them my take home points. This is something that is retained in my brain for the rest of the year and serves as a good guide book for me:
1. Three axioms in investing this year:
a) Dont chase growth: Emerging market consumers are fickle. What drives the prices is not growth but liquidity from the quantitative easing of central banks last year. Remember the lesson of Apple, which hit $700 but is now trading at $500 level.
b) Carry on with carry trades: Western central banks will print more money. So continue to borrow low cost money to invest.
c) Invest in emerging market de-coupling through first world first rate companies. BRICs will struggle to cope with inflation. Instead, look at large emerging market companies with long history of stability. These are the companies that will have minimal impact on economic shocks.
2. Inflation: China (and other BRICS) will continue to confront the inflation threat.
Midcap seems to be doing better than large caps. The graph below is the comparison of S&P 500 and S&P midcap
5. Infrastructure
Urbanization in China causes them to focus on social infrastructure such as healthcare and pharmaceuticals, much like the U.S. many years ago.
6. Quantitative easing in US will continue until inflation reaches 2.5% and unemployment hits 6% which will not happen in 2013. US employment may be rising but not enough. US economic activity is still below potential and labour market hardly recovered from the last recession. Home sales have been steadily rising but most of it comes from foreign buyers. Home inventories are going down though.
7. Latin America corporate bond market is another viable investment vehicle. Even if you cut their cash in half, these companies will continue to function well, thereby showing us how strong their balance sheets are. In fact, 73% of their papers are investment grade, which makes Latin American debt market a very good option to add to your portfolio.
8. Fearless forecast on the Peso. 39.50 by end of 2013. 39 by end of 2014.
I always look forward to attending their luncheon because I enjoy listening to Arjuna Mahendran, head of Investment Strategy. He speaks eloquently and concisely. His every sentence is filled with insights into the market and strategies. But this time around, they got Jose Rasco to give some of his analysis and outlook on the U.S. market.
The following list is not complete but they were the ones that I remembered from the presentation. So I call them my take home points. This is something that is retained in my brain for the rest of the year and serves as a good guide book for me:
1. Three axioms in investing this year:
a) Dont chase growth: Emerging market consumers are fickle. What drives the prices is not growth but liquidity from the quantitative easing of central banks last year. Remember the lesson of Apple, which hit $700 but is now trading at $500 level.
b) Carry on with carry trades: Western central banks will print more money. So continue to borrow low cost money to invest.
c) Invest in emerging market de-coupling through first world first rate companies. BRICs will struggle to cope with inflation. Instead, look at large emerging market companies with long history of stability. These are the companies that will have minimal impact on economic shocks.
2. Inflation: China (and other BRICS) will continue to confront the inflation threat.
3. Income growth: Chinese wages are rising. Southeast asia is blessed with crude oil, minerals and food crops. Luxury goods will continue to feed the growing emerging markets income gap.
4. Debt is doing better than equity. Look at the graph below. The green line is the EM bond index, while the blue line is the MSCI world index.
Midcap seems to be doing better than large caps. The graph below is the comparison of S&P 500 and S&P midcap
5. Infrastructure
Urbanization in China causes them to focus on social infrastructure such as healthcare and pharmaceuticals, much like the U.S. many years ago.
6. Quantitative easing in US will continue until inflation reaches 2.5% and unemployment hits 6% which will not happen in 2013. US employment may be rising but not enough. US economic activity is still below potential and labour market hardly recovered from the last recession. Home sales have been steadily rising but most of it comes from foreign buyers. Home inventories are going down though.
7. Latin America corporate bond market is another viable investment vehicle. Even if you cut their cash in half, these companies will continue to function well, thereby showing us how strong their balance sheets are. In fact, 73% of their papers are investment grade, which makes Latin American debt market a very good option to add to your portfolio.
8. Fearless forecast on the Peso. 39.50 by end of 2013. 39 by end of 2014.
