May Gains Stay

Greetings everyone. We had an onslaught of rain here in Shanghai last week so hopefully it’s now passed so that we can enjoy some sunshine this week. It was another busy week in the markets with even more data coming out, not to mention some hot topics so let’s get right to it!
Some of the data that came out last week included manufacturing reports, inflation numbers, continued corporate earnings, a few leading indicators, industrial output, housing data and several other pieces of data. This would take far too long to cover, so let’s instead take a snap shot of the basics shall we? The S&P ended the week over 2%, the FTSE was up about 1.5%, and the Hang Seng just slightly below where it started the week.
Most of the gains were due to better than expected results and for those of our regular readers, I know “expectation results” seems to be a repetitive theme, but, something different is brewing. And with this knowledge, it may help us to see a shift in investors’ attitudes towards expectation results that were either missed, or were lower than expected. It’s not unusual for expectations to miss targets (a lot of the time), however, this time round, more investors seemed to be clued in to the fact that the margins of error would be (and were) small. As a result, it didn’t slow them down in their trading. It wasn’t long ago that when results missed expectations, regardless of how big or small the margin, it would cause fear and drive investors out of the markets. So is seeing this resilience simply a coincidence?
Or could it be that some fundamentals are starting to return?
Regardless of the answer, or what fundamentals indicate, the fact now is that market momentum is going to trump everything else. When market momentum gains traction, fundamentals almost always take a back seat and usually don’t return until the momentum has run out of steam. So the question then is, when will this momentum run out of steam? It’s certainly on everyone’s mind, and anyone’s guess. It’s worth remembering too that every time there’s a dip in stocks we see more buyers come in, which in turn brings prices back up. Add to this that there’s also some cautious buying and profit taking going on as the swings are relatively in a tight range and making it difficult to get a strong consensus.
So whilst this continues, we would continue to recommend that investors hold a balanced portfolio and try not to get caught up in the short term movements and rebalance when beneficial…
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Darren Cox
Co-Head of Portfolio Management
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com