Global & China: Investment strategies
-- markets outlook for Q1 of 2010 -- what are your expectations?
· Much greater market volatility: investors will lose confidence in top line growth as a driver of earnings, and there is little room to keep slashing costs, what with unemployment already at around 18% in the US and probably 25% in China
· This implies an unwinding of carry trades, therefore a stronger dollar and yen
-- your investment strategies?
· Short-dated bonds
· Stocks: consumer staples
· Currencies: dollar and yen, with a continued long on the Australian dollar as rates there will keep rising
-- your thoughts on China's surprise tightening moves today
· The move is not surprising, given that the Central Bank raised its auction rates a couple of days before: that already sent a signal effect to markets about tighter monetary policy
· These suggest that the Central Bank, the Peoples’ Bank of China, or PBOC, has prevailed in its fight with the politicians.
o The Central Bank has wanted to tighten for at least a year, but
o The politicians have wanted to maintain loose monetary and fiscal policies
· It seems as if the PBOC will keep raising reserve requirements, but more in order to ensure the “health” of the banks - as opposed to reining-in their lending
· Ultimately, though, expect any “tightening” to have a muted effect: the politicians’ understandable need to keep creating 100 milllion jobs each year will prevail.
o The same applies to recent chatter about “tightening” in the property market….
n anything else you wish to add?
o Far too much energy is expended on “when will the Fed tighten?”
o Seems to me as if the real interest rate action to keep an eye on is at the long end of the yield curve:
§ Market worries about the exploding level of US federal debt suggest that volatility will rise at the long end of the curve, and
§ These very market worries will result in a major sell-off in US treasury bonds
