Excerpts from a monthly investment outlook by Financial Alliance (FA) sent to its clients recently.

In November 2008, Financial Alliance (www.fa.com.sg) became the first and only Financial Adviser Firm in Singapore to achieve both the Singapore Quality Class and the People Developer status.


sani_hamid_jan12
Sani Hamid, Director (Economy & Market Strategy)

Key points:

> The saying “Sell in May and go away” could not have been more accurate as equity markets had a torrid month (till May 29). Many suffered sharp losses which effectively wiped out the gains seen in Q1, leaving many markets with no gains and even large losses year-to-date.

> We are in a very good position to take advantage of opportunities in the market as we have remained defensive since August last year. Thus we were generally spared the large decline in August and September. We have also managed to avoid the see-saw movements over the past few months. The question now is one of timing.

> Be prepared to re-enter markets. We have made it no secret since late last year that we are looking to re-enter this market in stages via a Dollar Cost Averaging strategy in 2012. What is for sure is that we are getting closer to pulling the trigger.



Q. Are there opportunities?

FA: We are in a very good position to take advantage of opportunities in the market as we have remained defensive since August last year. Thus we were generally spared the large decline in August and September.

We have also managed to avoid the see-saw movements over the past few months. The question now is one of timing.

Overall, we believe that markets may experience some more downside from here. This is because markets have broken to the downside from a 3-month consolidation and, technically, this normally leads to a sustained move.

At this point, we see markets pricing in a slowdown in global growth and the happenings in Europe, but there is a chance it will also over-react and price in the worst case scenario in both these cases.

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For instance, we have read a few fresh reports that expect a potential global recession later this year or in early 2013 as the European crisis worsens.

On the European front, the discussion is also moving from what will happen to the rest of the crisis-hit countries like Spain, Portugal and Italy to whether a potential exit is in store for France and even Germany – which we find a bit far-fetched. But as such discussions intensify, as usual, we are likely to see markets over-reacting and pricing in the worst-case scenario.

Similarly, valuation matrices suggest a bit more downside may be in the pipeline.

The forward price/earnings ratio for the S&P at the bottoms of recent crashes reached 11.5 and 10.4, while it is currently at 12.2.

According to a report, Morgan Stanley’s market timing indicator is presently at -0.4, which is close to the buying signal of -0.5, although it is still a long way off the 2009 low of about -2.5.

However, it is also at these depressing times that opportunities arise. Larry Fink, chief executive of BlackRock, the world’s largest asset manager, believes that “because they’re scary times, it’s a good entry level to be a long term investor.”

One well-known name in European fund management was quoted by CNBC as saying he believes a contrarian buying opportunity is approaching, but things need to get worse first.

In his words, “I would like the situation to be even more stressful, and I’m waiting for that to happen. We are keeping some powder dry.”

He definitely took the words out of our mouth.

Q. So what do we do now?

FA: Be prepared to re-enter markets. We have made it no secret since late last year that we are looking to re-enter this market in stages via a Dollar Cost Averaging strategy in 2012. What is for sure is that we are getting closer to pulling the trigger.

Understandably, some may feel we are being too aggressive given the situation. Our reply to this is that we have always stuck to our views: we called for investors to go defensive ahead of the August 2011 crash and again for investors to stay sidelined despite the strong rally in the markets earlier this year.

Both these calls were clearly contrarian in nature but have proven to be correct. Right now, we feel that the best time to re-build our equity position is in the second half of 2012, when the global economic and European situations may be at their worst.

What about the Greek elections on June 17?  We don’t have a view on the outcome itself but we feel it could lead to very different consequences. If Greece leaves, the problems outlined earlier in this report will unfold and we could see a Lehman-type of sell-off.

If it remains in the euro zone, it is easy to imagine that the social-politicaleconomical situation in Europe would remain a mess for some time to come, especially as Spain and Italy have increasing problems of their own.


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Comments  

#18 Low Cze Soo 2012-06-09 19:20
Only do what you know best and within your means. This should apply to traders and longer term investors. Do not treat the stock market as another 'casino'. You may live to regret it.

Stick to the golden rule: buy low, sell high. If you are a trader, you short a stock on a down-trending market. You must be prepared to cut loss.

The longer term investor will time the market to buy very low at market troughs and patiently wait to sell at market booms. This can take many years, though economic cycles have shortened over the years. Alternatively, he may dollar cost average as advised by Sani.

Try not to use CFDs (high borrowings) which can greatly impoverish you.

In a highly volatile market today, retail investors have largely kept out of the market, leaving remisiers, traders, institutions and syndicates playing, some using high frequency program trades that can astound the experienced trader.

The average investor is well advised to keep things simple, learn the basic know how, and apply his knowledge intelligently.

In short, Sani Hamid and Cheong Wee are right only when they have, and are consistently reaping their rewards in greater measure.
#17 Dele 2012-06-09 13:33
The deeper the bad news, the more the chances of a strong rebound. When investors are always faced with intensely negative news, hosei! That's when bull markets begin --- right in the middle of all the bad news. Historically the bull markets rewarded investors with multibaggers.
#16 cheondwee 2012-06-06 11:32
I think Sani cost averaging going forward is not a bad idea. This one we can now do for blues chips.

Thanks Sani, i read you . But i still prefer to trade like a cowboy, since it is very profitable so far, unless otherwise, something happen that cause me to be converted to a
#15 cheongwee 2012-06-06 11:29
Lionmei

So, what is the different? they choose the wrong guy, just like we choose the wrong stock. Just one wrong stock is enough to take all your profit you make in all ohter counters.

So can we said they are smart for choosing one cowboy trader to make them famous. You choose me as some one call me cowboy is much better, i am very black in the money, shorting.

So would you forgive them if that is your money??


Sani , could be right abou the the cost averaging going forward, i will be covering my profitable short position soon. About time to long, soon.
#14 Lionmel 2012-06-06 04:17
cheongwee: Your logic is terrible. Morgan Stanley didnt lose 2B because they are not "so smart". It's all because of one cowboy trader.
#13 cheongwee 2012-06-05 22:54
Tigermei,

if morgan stanley so smart with their indicater, will they lose 2B???


We cannot change the wind direction, but we can change our sail.


Go long only in 2013, not now, buy gold in Oct, why? because risk asset will be in play, so ppl will sell gold, buy stock next year , gold will shine in 2013.


Buy gold at 1500, not now?? my prediction.
#12 cheongwee 2012-06-05 22:46
Why fear when the trend is clear. Euro is a gone case, but i think PIGS will get slaughter in 2013.

Don't buy anything except trade. Don't drive or jog or claw, or whatever till 17/6. !8/6 come, dow either go up a few hundred pts or crash., then you can take the next step.

I think i will let my trailing stop to take profit for me.

About time to go long. What a waste if you have not shorted these weeks???


good luck, i will jog, then claw under , then i will fly next to go long, then 2013 i will slaughter the market.


Learn to short, still got time.
#11 cheongwee 2012-06-05 22:39
Short sakari till 90c.Don't cathc this falling knife.

Join me shorting, still got lot more meat than you think.


I will long when it reach 90c, and wait and see, whether it will go to 60c. Unlikely, worse case scenerio.
#10 TIgermel 2012-06-05 08:00
Thought good analysis on Morgan Stanley timming indicator, specific question here is what is the good entry point? 2,600 or 2,500 or even below to do dollar averaging (anywhere to me this strategy I'm not a great fan as itis too risky in a downtrend market). Think we have not seen the clear picture of the Euro crisis here but expected global economy to slow down for sure as it will be lucky if Singapore economy is not affected for a "technical recession" again.
#9 Driver 2012-06-05 04:10
cheongwee: Do you drive or not? A car has park, drive, neutral and reverse gears. Do you run or not? We can jog, or coast, or sprint. Same too with investing. Your short-term high-velocity trading approach is only 1 type. People who buy funds have a different approach by taking the mid- to long-term view of big picture. Buying funds is not the same as buying 1 stock and selling it tomorrow.

U don't drive a car is it?
#8 cheongwee 2012-06-04 12:22
And cheongwee is still bullish till end of the year, unless 17/6 Greece defaulted.


You are going to be happy again,bull will be returning soon, but i will be looking out to cover my short soon. I hope i m right.


good luck to all
#7 cheongwee 2012-06-04 12:18
It is unwise to make enemies, better to make more money and keep quiet, no benefit to post, but to see people losing money, is beyond my means to keep quiet.

If you like to lose money to stranger in the market, why not just drop them into a donation box in the church or temple??? At least, you know you are doing the right thing like i do.,there is no cowboy here to do this and a no brainer thing to do this to accumulate for the future life of good karma to come.


May you forgive me for my nonsense, and may all be well.
#6 cheongwee 2012-06-04 12:02
You look at Sakari, we have been shorting this good counter, form 2.50 and it is now 1.25

50% down, i know it is going to be back at 2.5 in the future, but isn't it a waste, you follow it down and up. And it take 100% upside if u have bought the counter at 2.5, just ask when will it be back at 2.5

If Greece default, this counter will be even cheaper, the next support is 60C. not possible, think again.

Good luck to you all.
#5 cheongwee 2012-06-04 11:41
That is why to invest with fund are a waste of opportunity. Look he is out of market in this obvious bull rally of some 5 months, it is not a short one. Some counter return more than 50%. ave some 30%. It is a shame. We are not talking about trade, his fund should have advise invester to buy even in Feb, they still make money, And they just have to have a stop loss to protect their profit, simple, how to lose???

And to follow a stock down and up and make nothing and even worse still sitting on losses like those s-chip and keep call yourself nice name like value invester is a big joke. And to call yourself intelligence is an insult to other intelligence here. Calling them to ride the stock to the bottom and up and get nothing out of it.


I rather be cowboy and make money then value and find my counter getting less value day to day. Go ask those s-chip invester.


If Greece declare default on 17/6, it is sure sell with confidence, we should short big time, it is very profitable, don;'t be foolish and keep calling yourself as value invester.


Elbert is right, how to cost averaging since he is bearish whether Greece leave or not. He do not know what he is talking about.


From here, we know he is only 50% sure, so he is buying now and after 17/6 to cost average, i think this is what he means.


Look here, you need not be intelligence , just have a stop loss will be fine. During the rally, we rarely have an even 8% down, now we are stop out and shorting on all commodities stock making wonderful profit. Longing no longer work. Unless you look really long. How long?? if this mess go into a deep depression, some 10 yrs long to see you break even like the last crash.


It is not a wise move. Learn how to short, it is going to be very profitable. Follow me to short with a stop, you can only lose this much, better than value invester sitting on huge paper losses.
But they said it is paper losses only, a loss is a loss, whether you realise it by selling or worse still holding like your loved one or treasure.


Stop all your foolishness, follow the trend, the trend is your friend. Even Jim Roger said that, even though he agree the US$ is lousy, he is still buying because he follow the market trend, as mkt are long on the dollar. Never argue with the market., that is how you make money.


Bull make money, bear make money, Pig get slaugher. If you are stubborn like a pigs, you be slaugther. Be a cowboy is more profitable. Don't be a pig.
#4 Elbert 2012-06-04 02:38
Yes he can do the averaging himself. He could be lucky for the Aug 2011 call h/e the one in front of us is no one's guess. As in the report it pointed out rightly if Greece leave it is a LB-type sell down that means possibly 'double-dip' at hand and on the other hand if Greece stay mess remain for a long long time could also trigger double-dip just prolong the time bomb. Whcichever the case how do u do cost averaging down ? Personally think Greece will leave if left-wind win the election which very likely as the 35 yr old leader 'promise' to re-install the weages and pension whereby all voters welcome isn't it but that against the programmed directly hence Greece has no choice to leave. If that happends prepared for a drastic SELL down.
#3 Best 2012-06-04 02:14
I disagree with cheongwee -- he is a trader, whereas financial advisors are mid- to long-term investors. U can't compare the approach of the two. Secondly, cheongwee is talking on hindsight. It's easy to say one should have bought into a rally and then sell out at the top. There is a lot of 'cowboy' in the trading style of cheongwee. For him to suggest that his style works for everyone is an insult to everyone's intelligence.
#2 victortan 2012-06-03 16:04
Hi Sani

I hope you do not mind, but to call your invester to .."investors to stay sidelined despite the strong rally in the markets earlier this year.
" is not wise move either.


How can we see with our bare eyes that market soar without our participation.T his is no a good move. You should have bought and sold in April like cheongwee say.


Hope you do not mind my post.

victor
#1 cheongwee 2012-06-03 15:54
But to miss the rally from Oct to April is not smart either, you should have vested and sell in before May, you should have lot more profit. I have profit 50% over by my trade.


You should answer to your client, on how you can sit out this rally, without making a single cent.
But instead, you are telling people that you did not lose money, in May. Even, all my cut losses did not amount to 10% of my profit till today.


Truthly, it is a shame to miss the obvious rally form October last year.


So you got nothing to boast about.
 

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