Tag Archives: China

We are living a market crisis, but what are the alternatives for my money?

At the very beginning of the year, an analyst already mentioned the reasons of the bear market that we are still living.

1-year evolution in the main world markets

It is not only the crash in China and the aftermaths (slow economic development, cut in commodities demand), but there are many factors to explain. Just to quote them:

  • Oil price: far from be good news, the hard drop of the oil price could really show a weak demand, not a high supply. That means that the economic development could be worse. In addition, oil companies are highly indebted. With a low price, they will suffer to pay back.
  • Rising rates in US: The increase in the rates decided by the Fed last year will not be the last one in the next months. The economic development in US has some warnings this year and the central bankers prefer to watch instead of send a negative signal. Let’s see…
  • Deutsche Bank: recently added. One of the main European and world banks reported high losses, but the worst was the suspects about its solvency. Such crisis would put the euro in a hard position to continue existing.

Deutsche Bank YTD evolution

We could mention some others, but many people ask: are we living a recession again? Some analysts are very pessimistic, others stay in a middle position. In any case, the market evolution, which is driven by irrationality sometimes, is not a good economic crisis predictor.

The question is other. In former crisis, there have always been alternatives to move the money and obtain returns. What is currently the alternative? Stocks are dropping, investors are paying interests for the safest bonds, commodities are in the lowest points for years and traditional banking products offer very poor returns. The best to do:

  • Don’t panic: ups and downs are usual in markets. Even drops are common. If you have a strategy defined by your risk profile, keep it.
  • Don’t be obsessed by news: media are continuously bombing with negative news to get attention. Switch them off!
  • Don’t sell massively: the big mistake an investor can do is selling in a market sell-off.
  • Keep a long-term perspective: common investors are not traders. They invest to make future plans. If you do not need the money now, keep calm. Let’s wait till the landscape is clearer.

China: economy and finances are still very connected

The Chinese economy is living an unstable situation after decades of continuous strong growth, with some years over 10%. Suddenly, there was an earthquake in August. Since then, the Chinese economy slowed its momentum depending on the world. This time all moved at the Chinese speed. The unexpected decision of the People’s Bank of China of devaluating the yuan three times in August was a shock in the world markets, as in the developed ones as in the emerging ones.

Evolution YTD of stock exchanges in China and others

The consequences were so strong, as we already explained in a former post, that the US Federal Reserve delayed its decision of hiking the interest rates due to the financial instability. What was at the beginning the end of the Chinese stock exchange bubble, it is now the start of a possible economic crisis: several figures are warning about the evolution of the second largest world economy. For instance, exports and imports go down, the inflation moderates and industrial prices slow down, the World Bank prospects for the next years speak about a deceleration (around 7% of GDP growth, when the figures were over 9%-10% in the last decade). As The Economist comments, China is a giant in trade and direct investment, but in finances and financial markets is still weak.  There is still a long pace till China will play a stronger role to substitute US as the first player. The immaturity of its financial markets is clearly showed in this chart:

Shanghai composite evolution in the last 5 years

This is the evolution of the Shanghai composite in the last 5 years. The evolution was weak between 2011 and 2013 linked to the global crisis, but suddenly a bubble was created this year and exploded violently. Chinese authorities reacted late and could not control the hard effects. The YTD gains around 40% till August are now around 1.8% (it was negative till the last week). The volatility is very high (38%) and trend is very bearish (-1.87%), as T-Advisor models show. However, investors who entered this market in October last year have registered 40% benefits.

What are the results of ETF linked to China? T-Advisor database show global negative results YTD, but most of them are improving its results in the last month:

Results of ETF in China

And the final question is: what will it happen in China? We have models, figures and charts, but no crystal ball, but we can say that it will depend on the evolution of the economy. It is still very linked to financial markets and the decisions of the government. In any case, let’s say welcome to China as very influential player in the world markets.

Crisis in August and the role of China in the current markets

This summer was especially stormy in the financial markets. The cocktail joined two ingredients:

  • First of all, the unending Greek crisis, which played its last show in July after the failed referendum. It is still doubtful if the last bailout will solve the problem or just delay it.
  • Secondly, the Chinese crisis. This is more important, as it showed that China has already a big influence in the world economy and finances. As it is explained by The Economist, the world became nervous. China is already a very relevant benchmark for investors.

The Chinese crisis has shown that the development in the world second (for a short term) largest economy is still weak, as it needs the strength of several institutions and mechanisms, besides its own model. The surprising devaluation was the signal that investors had to flee. However, as the T-Report chart shows, the performance of the Shanghai market is 41% higher compared with August 2014.

1-year chart of Shanghai Exchange

The problem is not limited to China, because the country is one of the main debt holders, commodity consumer and investor in emerging markets. As the dominoes, the pieces begun to fall:

  • The price of commodities is in the lowest point for years.
  • The emerging countries set the alert, as the outlook is that the Chinese commodity demand fall. Then, market evolution and economic forecasts began to be quite negative.

In the middle of this storm, the Federal Reserve showed doubts about the anticipated decision of hiking the rates. Under the current market conditions, the monetary institution thinks that this decision could be worse for future economic developments.

But the question for a common investor is: what can I do? Debt from developed countries offer low interests, developed exchanges drop and emerging exchanges, which formerly could help as an alternative, are even worse. Even China, which sailed in the middle of the Great Crisis with some success, shows its feet of clay. Then, what?

Comparative T-Advisor chart with 4 main exchanges

An investor strategy should be focused on capital preservation. These were our results in the T-Advisor European model portfolios, following this strategy:

Exchange

Loss in the last 30 days

Model portfolio loss in the last 30 days

DAX

-12.47%

-6.22%

IBEX 35

-11.3%

-7.42%

FTSE 100

-9.34%

-0.94%

The only solution in the current market turmoil is clear: good information about assets, tools to select the best ones, rebalancings and a strategy centred in capital preservation to reduce possible losses.

Global market trends: markets in January

This year has begun with the markets playing hard rock. The list of figures and events is long and all of them have effects on the markets. Obama declared the end of the crisis, radical left won in Greece, ECB began the European QE, China grew at the lower pace since 1990… Impossible to miss!

First of all, it is necessary to take into account a point in macroeconomics. IMF reduced its world growth outlook for 2015 last month. Amongst the risks, it is found the cheaper oil prices. Why? Yes, it pushes consumption and reduces industrial costs, but it can feed the deflationary trend. Deflation is very risky, as people tend to postpone investments’ and purchases’ decisions. Current price is around $50, but the pressure from Arabian producers could push it to a lower bar.

Global market trends in January in T-Advisor

Several experts have already warned that 2015 would be an unstable year for economics. However, US President Obama said in his State of Union address to the Congress that the economic crisis was over. American economy has experienced a recovery, but Federal Reserve is still reluctant to increase rates, as it does not perceive inflation risk. Although observers tend to think that the American central bank will hike rates in summer, it is still soon to have a clear perspective about that decision with the current instability.

US global trend in T-Advisor

In Europe, the ECB did finally what many economists recommended some months, even years, ago: an expansive monetary policy printing money. The European QE will expand ECB balance in €1 trillion, but effects will take at least six months. In any case, markets make their own party, till Greeks voted the radical left party Syriza in the last election. New Greek prime minister declared his intention to negotiate the country debt, but European partners do not agree. Markets have suffered abrupt ups and downs. Another point of instability was the Swiss National Bank decision to unpeg its currency from euro, which was not expected by investors.

Europe global trend in T-Advisor

Latin America is still the weakest world region. As the IMF comments, these countries are very dependent from oil and commodities. The current negative price trend for these products is punishing the market evaluation about the region.

Latin America global trend in T-Advisor

In Asia, China registered the lowest growth (“just” 7.4%) since 1990, which can show some weaknesses in its develop. These figures have partially stopped the soared trend since People’s Bank of China reduced its rates in November. In Japan, recent election victory by prime minister Abe guarantees that his expansive economic decisions will continue, but it is to see if they have effects after 25 years of weakness.

Asia global trend in T-Advisor

 

Market opportunities by T-Advisor: Cheung Kong Infrastructure

T-Advisor, through its tool Market Opportunities, has detected the company Cheung Kong Infrastructure, listed in Hong Kong Stock Exchange, as an opportunity for investment.

These are the main figures about performances and volatility in the last years:

Cheung Kong Infrastructure main figures in T-Advisor

The chart shows the evolution in the last year:

Cheung Kong Infrastructure chart in T-Advisor

The technical analysis reveals also more data:

Cheung Kong Infrastructure technical analysis in T-Advisor

Finally, the risk analysis is as follows:

Cheung Kong Infrastructure risk analysis in T-Advisor

Cheung Kong Infrastructure Holdings Limited (“CKI” or the “Group”) is the largest publicly listed infrastructure company in Hong Kong with diversified investments in energy infrastructure, transportation infrastructure, water infrastructure, waste management and infrastructure related business. Operating in Hong Kong, Mainland China, the United Kingdom, the Netherlands, Australia, New Zealand and Canada, it is a leading player in the global infrastructure arena.

Group turnover increased in 2013 a 22,24%, till HK$ 5,018 million, compared with the former year. Group year profit also jumped a 22,2%, till HK$ 12,312 million. The company has more profit than turnover, as it has also incomes from results of associates and joint ventures. CKI doubled its turnover and profits in the last 10 years, but multiplied 10 times the incomes from associates. Listed on the Stock Exchange of Hong Kong in July 1996, CKI’s market capitalisation was over HK$130 billion as of September 30, 2014. The share also doubled the price since 2010.

Market opportunities by T-Advisor: Tianjin

T-Advisor, through its tool Market Opportunities, has detected the company Tianjin, listed in Hong Kong Exchange as an opportunity for investment.

These are the main figures about performances and volatility in the last years:

Tianjin main figures in T-Advisor

The technical analysis reveals also more data:

Tianjin technical analysis in T-Advisor

The chart shows the evolution i the last year:

Tianjin chart in T-Advisor

Finally, the risk analysis is as follows:

Tianjin risk analytics in T-Advisor

Tianjin is part of the state-owned Chinese conglomerate TEDA Investment Holding. Its main scope of business covers regional development and real estate, public utilities, manufacturing industry, financial industry and modern service industry. In 2013, the sales revenue of the company was RMB 83.0 billion Yuan and the total asset was RMB 225.9 billion Yuan. Share price multiplied three times since the beginning of 2013.

Global market trends: markets in summer

Summer is usually a term quite unstable for the markets. August is a month with higher volatility as capital flows diminish and movements show bigger than they really are. This summer, markets experienced a sudden fear not related to economic or financial reasons, but political ones: the Ukraine crisis. Investors were always with an eye on this country, which is living a civil war. Behind of this war, there is a hidden power fight between Western countries and Russia, as a new edition of the old Cold War. When such kind of political tension exists, money flees. The war still exists and is far to be solved, but it seems that the market worries changed in the last weeks to other motivations: Central Banks.

Global market trends in august in T-Advisor

The World Central Banks meeting in Jackson Hole, US, some days ago, showed the different strategies that are being discussed by the monetary policy managers in their influence areas. Analysts and investors are almost sure that a rate hike will be sooner than later in the main world economy, but Mrs. Yellen is still reluctant while unemployment does not strengthen its downwards slope.

US market trend in August in T-Advisor

In Europe, on the contrary, markets are very sensible to every word that Mr. Draghi says, because it is to expect that new expansive monetary decisions will be taken. For today’s ECB meeting, analysts opt for some explanations instead of new decisions, as more details about TLTRO (a system to lend huge money amounts to banks). ECB Chairman announced in Jackson Hole that the institution is ready to act. Meanwhile, main European countries inflation and GDP figures were quite bad. This is considered as a pressure for the ECB to decide new measures.

Europe market trend in August in T-Advisor

LatAm countries are under the shadow of two crises: the eternal Argentinian debt troubles and the recession in Brazil. In the case of Brazil, analysts comment that this decrease in the GDP has to do with the post Football Worldcup effect. In any case, low prices are still attractive for investors in this area.

LatAm market trend in August in T-Advisor

In Asia, worries increase around China, as the recovery momentum slowed and opened doubts about the strength of the upward movement. However, T-Advisor global trend tool shows that the second world economy markets are sounder that some months ago, when the trend was deeply bearish.

Asia market trend in August in T-Advisor

Markets deal with several risks in the short-term

The current world situation has some points of instability for the markets. Last year, the earnings were quite high after the financial crisis years, but 2014 began with a more complex landscape, mainly in the emerging markets, as we have written before in this blog.

Risks: Global trends in markets by T-Advisor

As we see in the chart above, the main trend is still bearish for all the markets. What is happening? The first problem has to do with central banks. Janet Yellen, new chairwoman in the US Federal Reserve, seems to be “dovish” as she prefers to delay somehow the taper of the quantitative easing or, at least, wait more for an increase of the interest rates (announced for 2015), not linked to a concrete unemployment rate. Is it good? Not necessary, if the Fed mentions in today’s and tomorrow’s meeting that the US economic recovery is slower than expected.

On the other side of the Atlantic, ECB chairman Mario Draghi announced surprisingly in last press conference that the institution will not take any decision in the monetary policy although the credit flows are still low, there are downside risks for inflation and the exchange rate euro-dollar is touching the psychological 1.40 $ border. This exchange rate is risky for European exports and has influence in the decrease of the inflation, as import prices pressure to lower prices. An outlook of lower prices is critical, because it delays consumers and investors decisions to buy.

In the Asian front, China worries the markets, as there are some dangerous signs related to the financial and the export sector, amongst others. But the markets follow carefully the developments in Ukraine. Recent political events in Crimea increased concerns for the effects of the economic sanctions imposed to Russia by the EU and US, apart from the risk of a conflict on the land.

Next weeks will be decisive to watch the evolution of the markets: will instability be part of 2014? Or are all of these risks just an exception in a possible upward trend?

Emerging markets: risk with chances in 2014

Emerging markets Puzzle with Brazil, Russia, India and China flags by T-Advisor

Emerging markets compound an increasing number of countries in the last years. In the beginning, Goldman Sachs pointed them as BRIC (initials of Brazil, Russia, India and China). This successful combination enlarged joining to this group another countries: Indonesia, Korea, Taiwan, South Africa and Turkey. In the markets, they are divided between the “fragile five” (Brazil, India, Indonesia, South Africa and Turkey) and the “fab four” (China, Taiwan, Korea and Russia). The reason to build this both groups is linked to the current account position: deficit for the first ones, surplus for the second ones.

This point is quite important in the current financial situation and conditions investors’ decisions. The “fragile five” will suffer from the tapering begun by the Fed in December. The costs to finance their deficits will increase as the dollar will be more expensive and the US debt will require higher yields. Moreover, these countries will deal with elections in 2014. On the contrary, the tapering decision did not affect the fab four, which represent 50% of the MSCI Emerging Markets index.

What is the best in emerging markets? Just run away? Take the money and say goodbye? Schroders disagree with a pessimistic position about them. As this bank underlines, these countries have solid economic fundamentals and attractive valuations. However, tapering will create uncertainty in some countries, as it was mentioned above. Avoid an exposure to tapering-affected countries and overweight the other group is the point for the British bank.

Russia appears as a specially cheap country for investors, as Alken Asset Management recently stated. The situation is similar in India: low prices open great chances, but it depends on the election results, the economic expansion and the effect of the Fed tapering. In the case of China, the view is driven to sectors that did not outperform in 2013. Possibly, Brazil will suffer at most, as the widening current account deficit will affect the economic outlook, despite the positive impact of the Football World Cup in investment.

Invest in emerging markets is a risky game, but with productive incomes and profits if the right keys are played. In this case, macroeconomics will have a very important role in investors’ decisions.