Indices Continue Playing Tug of War

Screen_Shot_2012_10_23_at_9.58.43_AMHi everyone! Once again the weekend weather here in Shanghai didn’t disappoint and we were able to take advantage of it on Sunday winning one of our two softball games. The win we had was against the league champs so although we lost one on the day it’s good to know we can play with the best of the division heading into the playoffs!
Last week we saw a lot of attention paid to economic data as investors continue to weigh the pros and cons of monetary stimulus vs. economic data. The S&P 500 ended the week almost where it started and the gains made on the first half of the week were offset by the losses in the second half of the week. Indicators pointed to weaker data expectations and that was indeed the case with weak corporate earnings from US and Japanese companies. With concerns also remaining in Europe, many investors looked to secure some of the gains we’ve had over recent months until they can get a better idea where the global economy is heading. So, what exactly are they waiting for? Is there a definitive event coming which will indicate the direction of prices? Put simply – probably not and investors who are waiting for these exact answers might have to wait a long, long time.. and even then, they might not get the answers they are looking for!
Screen_Shot_2012_10_23_at_10.04.16_AMLet’s take a look at some of the specific regions, as one good indication will be China. A large amount of economists are hoping that China will leadRMB appreciation against the USD another rise in global production just as they did after the 2008 crisis, however this is not a straight forward comparison given the situation right now is very different from the situation at the end of 2008. One thing however that has been visible is the RMB appreciation against the USD. Even at the end of 2008 when China was starting to lead the global economy out of recession they kept the rate pegged against the dollar for about 18 months, and it wasn’t until China was confident in their position, that they allowed the RMB to start appreciating against the dollar. We’re seeing evidence of this again with the recent appreciation of the RMB against the USD in the past month after what has been a long holding pattern. Does this mean China is at the bottom and ready to start leading again? Maybe not immediately but this could indicate that China is planning to make some changes to improve their domestic situation and as a result this could benefit their neighboring countries and trading partners.
China, the worlds 2nd largest economy Screen_Shot_2012_10_23_at_10.12.34_AM
My counterpart Bill Longstreet touched on China last week and talked about how China’s situation directly impacts its trading partners in the Asia region, as well as resource based economies including Australia, Canada, and Brazil. Remember that China is now the world’s second largest economy and on track to overtake the US in due course which makes them a huge factor when considering global economics. With concerns in Europe having diminished a lot of China’s exports we see a clear correlation of slowdowns in Australia and Brazil as demand for raw materials and resources falls. That trend has continued recently and although it might be several more months before any demand really picks up for the commodities and resource sectors, they certainly remain great value at the moment and investors with a few years time horizon will surely want to continue acquiring these sectors at low prices.
In the precious metals arena gold still remains in the mid $1700 region but we would expect this to start climbing in the next few months as the US continues with their $40 billion injection each month. WTI Oil remains around $90 a barrel and again investors looking for longer term growth will want to hold energy assets. Europe and the US have seen very slight but upward increases and could be quite flat as the tug of war between weak data and stimulus continues to go back and forth. On a side note, Africa has performed very well year-to-date and we expect performance to continue so we will be looking for areas of opportunity for our investors in this sector moving forward. All in all, investors should continue to hold a balanced portfolio during these times and continue to focus on their investment time frame strategies.
Precious Metals
Screen_Shot_2012_10_23_at_10.17.16_AMFor Austen Morris Associates’ investors – remember to hold a balanced portfolio and talk with your advisor about any repositioning to take advantage of markets at this time. For more updates on the world financial news please visit our Weekly Global Economic Outlook.
I hope everyone has a great week!
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team


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