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2H15: Sep Rates Hike; China Cheap Again
Aspire, Thought Leaders | 18 August 2015
By: Vance Wong
Articles (74) Profile

With recent uncertainties about interest rates and the outlook for the global economy in 2H2015, many investors are confused about their next step. Local investment guru Daniel Loh shared some insights about the global economic landscape in a recent interview.

Daniel discussed about various economic issues right now, including the impending rate hikes by the US Federal Reserve and how it would impact Singapore. He also talked about the Chinese market’s valuations right now after corrections over the past few months. Last but not least, the Singapore General Elections and how it is not having much impact on the market as expected.

On Interest Rates

Source: www.forbes.com

The core inflation rate in the US has been stagnant at 1.7 to 1.8 percent for the last four months, mainly because of falling crude oil prices. Daniel believes that oil prices are bottoming out, which indicates that a recovery is imminent.

Another factor is the housing landscape, which is shown in recent reports that home sales figures are getting better. To Daniel, these two factors are signs that inflation is rising.

Another concern that Janet Yellen, chairwoman of the US Federal Reserve had was the global economic situation. Raising rates when other countries were still undergoing monetary stimulus would definitely put the US in a bad spot.

On the Chinese Market

Daniel previously warned about a correction in the Chinese market, but thinks that investors can start looking at China once again. Having gone through the correction, stocks are relatively cheap now, but prices would not skyrocket crazily (and irrationally) anymore.

That is because Chinese investors have learned their lesson and the market is in a reality check now, Daniel advises interested investors to look only at good fundamental stocks. Good earnings and strong balance sheets are the safest indicators.

Furthermore, a financial crisis might strike Asia, but not in the very near future, yet. Daniel feels that the global inflation figures and interest rates are still low. However, if interest rates rise too high, Asia will collapse first because of its generally high property prices.

With the recent recovery of Europe, Japan and China, rate hikes would make more sense now. Daniel agrees with Warren Buffett: the US is ready. Previously the uncertainty among investors had caused the markets to underperform and a rate hike now would likely remove the uncertainty and fears.

On Singapore’s Upcoming GE

Singapore’s Straits Times Index (STI) and other Asian indices have not been performing well. Daniel thinks that the STI performance is closely linked with the global index selldown, which is caused by interest rate uncertainty.

In Daniel’s opinion, the upcoming General Elections (GE) have minimal impact on the STI right now. Although past GEs have had notable impact on the STI, be it negative or positive, the impact has not been proven to be direct as of yet.

On another note, despite the rather pessimistic view towards the STI until interest rates firm up, Daniel likes the offshore & marine and commodities sectors right now. These sectors have been bearish since 2011 due to economic issues in Europe and China.

When interest rates rise, which indicates that the global economy is finally improving, Daniel will be aiming to catch the bottom of these two sectors in 2015 or 2016.

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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