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Hu Li Yang: Don’t Fall Off The Horse’s Back In 2014
By: Simeon Ang
Articles (125) Profile

If the previous 10 years were years of wealth appreciation, then the next 10 years will be years of wealth depreciation. This is the grim and stark prediction that Asian investment guru, Hu Li Yang had when I caught up with him when he was in town over the weekend.

Eager to find out more, I asked him about his outlook for 2014 as well as what investors should look out for in the year of the horse.

Outlook 2014 – High US Stock Prices A Bad Omen
Off the bat, Hu was very pessimistic. When asked about his outlook for 2014, he mentioned two major factors that have fed his naysaying. The first factor being that US stock indices are currently at their peaks. And as with most situations, when prices have hit peaks, they usually fall dramatically.

In fact, all three major US stock indices (S&P 500, NASDAQ, Dow Jones) are currently at historic highs. Hu felt that US markets are currently reflecting all future expectations of an economic recovery. In fact, he feels that US markets are currently overpriced.

Source: FactSet, 5 year chart on S&P 500 (Blue) vs Dow Jones Industrial (Green) vs NASDAQ (Red)

Hence, in an overpriced market, all that is needed is a small nudge in the opposite direction and the house of cards would fall.

The second major issue that Hu noticed was that during the first few days of trading, the broad Straits Times Index (STI) had black candles for four out of five days.

In his analysis over the years, Hu found that the yearly performance of the STI can be extrapolated from the first five days of trading. He realised that this extrapolation had a 70 percent probability of being true.

Source: FactSet, candlestick chart of the STI in the first few days of 2014 trading

A quick screening of the past two years revealed that Hu’s assertion seems to bear some weight. In the beginning of 2013, the STI had black candles for four out of five days while in 2012, the STI had white candles for four out of five days.

Source: FactSet, candlestick chart of the STI in the first few days of 2013 trading

Source: FactSet, candlestick chart of the STI in the first few days of 2012 trading

Coincidentally, the STI recorded double digit growth by the end of 2012 while by the end of 2013, the STI barely managed to eke out growth.

In Agreement With Goldman And The Two Morgans
With this much foreboding, I asked Hu if he agreed with an equally pessimistic report ( on emerging markets by three top US banks…

So what did investment guru, Hu Li Yang think about the the separate reports issued by major banks about emerging markets? Did he differ in opinion or does he also believe that emerging markets will be heading for a bad year in 2014 and beyond? Find out about this and more in our free e-book, Outlook 2014 now!

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

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