This is third week and just the start of 2015. We already see volatility. The Shanghai Composite declined 7.7% yesterday but rebounded 1.82% today after China released its 2014 GDP growth rate (at 7.4%, better than anticipated by analysts).
The International Monetary Fund’s GDP growth forecast for global economy is 3.5 per cent for 2015 and 3.7 per cent for 2016. These are downward revisions of 0.3 percent relative to the October 2014 IMF’s World Economic Outlook (WEO).
World oil prices slumped more than 50 per cent since June 2014. Brent Crude oil is now US$49 per barrel. WTI Crude oil is now US$48. Concern about global deflation is gathering momentum from Europe to Japan and rest of the world. Deflation suggests slow growth for the economy. This is not good news.
The only exception is US, which is projected to do well this year. Investors were expecting Fed to raise interest rate this year, quantum and timing are however unknown. This also creates uncertainties.
The recent concerns resulted in flight to safe investment instruments such as US dollars and Treasury Bonds. US dollar advanced against Euro, Singapore dollar, Aussie dollar in the past three months. The yield for 10-year Treasury Bonds is now 1.81% way below 3.0% expectation in 2014. This means that prices of Treasury Bonds shot up (when yield declines). Gold prices went up too since Thursday, now at US$1,288 per ounce.
All these suggest unstable investment climate. How are we to invest in this climate? Not easy.
For me, I am looking at parking cash in fixed deposits when some of my investments mature in early part of this year. I am not liquidating my Singapore equity portfolio because these companies have potential to grow in the long term. During time like this, buy equity based on business fundamentals and hold on to it even if it declines in price. Do not speculate on very short term basis. It is too risky right now. As for bond investments, there are good bonds and there are risky bonds (most with very high coupon rates or yields). Good bonds include debts issued by reputable and stable companies (whose yields may be low but there is likelihood of them not collapsing).
Timing the market to buy in or sell out is now most difficult due to these uncertainties. I bought some stocks at the start of 2015 and now they are below my cost prices. Therefore, I am holding back for a breather and wait for clearer signs of the global economies and watching price movements of key investment products.
Copyright © 2015, limkimtong for Living Investment
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.