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Jane Fu: Answers to 2 Questions that Really Bother Investors Right Now
Aspire, Thought Leaders | 06 November 2015
By: Chen Xushuang
Articles (26) Profile

It’s near the end of 2015, and now is a good time to sum up the past happenings and look forward to 2016. In the recently concluded Shares Investment Conference, Financial Risk Manager Jane Fu from CMC Markets gave us a recap of 2015, and shared with us her expectations for the coming year. She also addressed the below questions that have bothered investors for the year, and shared her insights.

Question 1: When will the US raise its Fed Reserve interest rates, and how would it matter?

The latest news (as of 5 Nov) reported that Fed Reserve Chair Janet Yellen considered a December rate hike a “live possibility”. But again, nothing is promised or confirmed.

Unlike many concerned investors who are dying to know the exact timing and magnitude of the hike, Jane thinks that the rate hike is not the most impactful issue anyway.

“The US has been signalling a rate hike for a very long time and by now the market would have already ‘digested’ this information. So eventually, regardless of whether a rate hike takes place, I don’t think it is going to stir up much reaction in the market,” said Jane.

In Jane’s view, the 2016 US presidential election could have a greater influence on the market. She pointed out a general trend that she noticed for stock movements during election periods in the past 20 years: The S&P 500 would rise before the election, and decline sharply after which.

S&P 500 movements with relation to the US presidential election

Question 2: Is China’s economic slowdown going to bring disaster upon the global economy, and who will be affected?

It is undeniable that China has been facing a slowing economy—Industrial production in August merely increased by 6.1 percent year on year, and the Caixin Manufacturing PMI has fallen below 50 for consecutive months after June. GDP growth for the last quarter has also slowed down to 6.9 percent from the previous quarter’s 7 percent.

However, it would be “too exaggerated” to perceive the 0.1 percent decline to be “an economic collapse”, said Jane.

“China’s domestic consumption is still growing steadily, and investors should be focusing more on that, instead of fretting over GDP growth figures,” she added.

Source: http://www.sec.gov/

Nevertheless, Jane said that countries that have close trade relations with China, such as Thailand, Indonesia, Australia, and even Germany, etc., would likely suffer the impact of China’s economic slowdown. On the other hand, she opined that India might stand to gain from such a situation, and replace China as “The World’s Factory” when the latter loses its competitive advantage of cheap labour.

As for Singapore, Jane warned that the banking sector would take a heavier blow, considering the prevalence of cross-border lending. China’s economic slowdown would mean reduced loans and borrower’s capacity (ability to pay back loans). Thus local banks would be affected when corporate credit in China deteriorates.

Investors’ Takeaway

Jane has some advice for investors:

1)      Pay close attention to profit/loss ratio to cut loss and let profits run. Place a stop-loss order before taking position.

2)      Choose large-cap stocks over small-cap stocks. The latter tend to have very limited market diversification, and often turn out to be the first ones to crash in times of market volatility. Given the uncertain market outlook, focus on large-cap stocks with great growth potential, good reported earnings, and large market value.

3)      Make use of leverage effectively; choose good growth and high-value stocks as a hedge. Meanwhile you can also do some bargain-hunting.

As a Communications Studies graduate specialising in journalism, Xushuang is keen to observe and explore issues that readers want to know more about, and to deliver quality content through engaging writing.

Please click here for more information about this author.


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