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Daniel Loh: DANGER! STI & US$ To Correct Soon!
Aspire, Thought Leaders | 22 April 2015
By: Vance Wong
Articles (74) Profile

In a recent interview, Daniel Loh expressed his opinions about the possibility of Singapore Straits Times Index (STI) and US Dollar Index (DXY) facing a prolonged correction.

Daniel Loh thinks that the STI is currently a little overly inflated and there are not many attractive entry points for investors right now. Whereas for the US Dollar, after the recent release of a “slightly weaker-than-expected U.S. Retail Sales report,” the US economy appears to still be lacking a very clear upward trend.

On The Near Future Of The STI

Source: FactSet Fundamentals

Daniel Loh: The STI is hovering around the 3,500 range and it is a sign that share prices are getting a little too inflated at the moment. As such, it is not an ideal time to enter the market for investors that want to ride the uptrend. Besides, I think that the STI will face a correction soon, probably somewhere around May.

Although many blue chip companies might most probably experience falls in share prices, some small caps might still be attractive. For retail investors, you can consider allocating part of your portfolio on such stocks.

On US Interest Rates

Daniel Loh: Many Wall Street analysts have predicted that the US Federal Reserve would most probably increase interest rates in June. However, I personally do not think that the Feds would raise rates so soon.

There are two main reasons for my proposition: Inflation is currently below the expected two percent; there are still some major currencies going through Quantitative Easing, namely the Euro and Yen.

Firstly, the Federal Reserve’s core inflation goal is around two percent. It is however, currently hovering around 1.8 percent (core inflation in March). If the Fed were to raise interest rates now, inflation could fall further.

Furthermore, when the interest rates are increased, the US Dollar will be expected to appreciate, causing US exports to be expensive thus further weakening the US economy.

Secondly, other economic powerhouses like Europe, Japan and even China are adopting more accommodating monetary policies. That is to say, these regions are lowering interest rates or pumping money into their individual economies (through QE).

If the US were the lone economy to increase interest rates, this could have a detrimental effect on the US economy and possibly cause a correction in share prices.

The Effects Of Such An Interest Rate Hike

Daniel Loh: That being said, low interest rate environments should not be the new norm, I believe that the Federal Reserve will increase interest rates after the third quarter of this year.

Conversely, in any case if the Fed decides to increase the interest rates despite the possible setbacks, I think that there will be at least some correction to the US stock market before the actual increase.

Nevertheless, I do not think that the market will crash. This is taking into consideration that many analysts and investors are already prepared for increased interest rates. The only thing that they are not sure of is the time it will take effect.

Therefore, I doubt that there will be a global panic and investors do not need to be too worried. The US market is still in a rather safe position but investors should expect a slight correction to take place before the raise of interest rates.

To find out more about how STI, DXY and other major indices will be doing this year, sign up for a free workshop by Daniel Loh. Daniel will touch on several topics which include what investors can do during different cycles of a bull market.

At the same time, Daniel will also talk about how various indices are currently performing. His workshop, spread over two days will be in English and Chinese.

Date: 28 Apr (Tue) English Session
Time: 7pm – 10pm
Venue: 141 cecil street, Tung Ann Association Building #07-02 S(069541)
Tanjong Pagar MRT exit G, cross the traffic light 80 metres ahead
With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

Please click here for more information about this author.


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