GAFM Expert Opinion

Time to Turn Defensive: Al Watan Daily Kuwait June 7 2009

By Naaim Abbasi

Saturday, June 6, 2009 11:06:07 AM

Time to Turn Defensive

Michael Preiss
Chief Investment Strategist
African Asset Management
Exclusive to Al Watan Daily

In this column in Mid March, I argued that what the Stock Market crash meant was that is was time to buy. The MSCI World Index has surged +43 percent from a 13ـyear low on March 9. The MSCI Emerging Markets Index has rallied +38 percent this year, outpacing a +7.2 percent increase in the MSCI World Index.

Emerging Market equity funds are said to have received 26.1 billion U.S. dollars in inflows so far this year. Stocks are now valued at 15 times reported earnings in developing nations, more than the average multiple of 13 times over the past five years, according to data tracked by Bloomberg.

A growing number of strategists, including ourselves now seem to think and say that Global stocks are "overbought" and are set to fall in coming months because recent signs of an economic recovery are not sustainable. My fear is that complacency is back in the market and the low volatility has fueled a lot of these moves.

The one variable to watch is the U.S. dollar. The scale and speed of the dollar collapse has been spectacular. After all, something is dangerously wrong in international finance if the world's reserve currency can lose five per cent of its value in a mere month.

I am amazed that crude oil trades at$ 66 even though the demand curve has continued to soften as the global recession has taken its toll on diesel, jet fuel, LNG and 100 million barrels of black gold are stored in supertankers and in ports around the world.

OPEC''s compliance has been exceptional, thanks to Saudi Arabia, Kuwait and Abu Dhabi''s willingness to slash output, yet the IEA forecasts more than 2.6 million barrel day shrinkage in global demand. Pension funds and sovereign real money accounts have slashed their U.S. Treasury bond allocations in favor of commodities, a natural reaction to the Gـ7 money printing tsunami.

Higher oil, a 10 percent jobless rate and a spike in mortgage and consumer borrowing rates will make green shoots a cruel illusion.

The Fed cannot allow a triple whammy shock on the fragile U.S. economy, where Q1 GDP fell ـ 5.7 percent. Sentiment and markets conclude the worst is over yet the data tells me the optimism is clearly wishful thinking!

So where does this leave the global stocks?

Earnings in emerging markets could contract ـ 25 percent this year before posting a rebound of +20 percent in 2010. This would imply that Emerging Market might have gotten ahead of themselves and are now due for a correction.

I am also much less optimistic on the prospects for oil prices; it seems that recent gains were driven by "technical factors" and an improvement in investor sentiment rather than the demand and supply outlook.

A subـpar global economic upturn seems the most likely scenario for the next year or so. The destruction of consumer wealth and the need to rebuild balance sheets will be a powerful constraint on growth. Meanwhile, a return to freeـflowing credit remains a distant prospect.

Employment in the United States continues to contract at a fierce pace. Initial unemployment claims might be close to a peak, but the level is still at a 25 year high and it will be a long time before the U.S. unemployment rate is back to a reasonable level.

Options on stocks and currencies show "strong warning signals", that the recent rally for stocks and the decline in the dollar may be poised to end.

In the final analysis, when in mid March the risk/reward ratios clearly favoured the courageous decision to buy stocks, now in June it seems the wise thing to do is to "book profits" in stocks and take some money off the table.

The writer can be reached at: www.africanassetmanagement.com

http://alwatandaily.alwatan.com.kw/Default.aspx?MgDid=763936&pageId=476

INSIDE - Asia Institutional Investor Journal

By GAFM Admin

Monday, May 25, 2009 06:34:41 AM

China Life said it had raised its investment in equities in the first quarter but reaffirmed that fixed-income would remain the core of its investment. This and other stories can be found at www.inside-journal.com.

*China Life said it had raised its investment in equities in the first quarter but reaffirmed that fixed-income would remain the core of its investment.

*Singapore state investment agency Temasek will invest US$600m to raise its stake in China Construction Bank to 6.5% from 6%.

*The increasing pressure on profitability at active asset management firms in 2009 is likely to cause considerable changes in the industry and asset owners are urged to prepare accordingly.

*A year ago, US and European governments worried that sovereign-wealth funds from oil-rich countries and Asian exporters could become tools of economic dominance - not now.

*China has made a significant shift in the investment of its foreign exchange reserves, a sign of how it is willing to act on concerns about financing an explosion of US debt.

*Expensive valuations, weak economic fundamentals and government meddling are making Aberdeen Asset Management wary of Chinese equities.

*UBS have extended the reach of their PIN (Price Improvement Network) platform to Hong Kong, allowing customers to match orders automatically with counterparties in the internal pool.

*The promoters of Indian real estate developer DLF last week raised Rs38.6bn (US$780m) through a selldown.

Editor: Paul Bayfield (+852 2833 4608) Email: paulbayfield@inside-journal.com


Publisher: Robert Agnew (+852 2833 4608) Email: robertagnew@matrixserviceslimited.com