Waiting on Everyone Else

Greetings everyone! It sure has gotten cold here in Shanghai and I am starting to envy those in the southern hemisphere who are getting into the brunt of summer. But with the winter holidays coming up for us in the northern hemisphere, the cold just helps make everyone enjoy being inside together celebrating the Festive Season a bit more! The cold also seems to be having a knock on effect to the trading floor where it seems market indices remained fairly unchanged from where we left them last week.
The S&P 500 moved less than half a percent on the week ending down about -0.3%, while over in the UK the FTSE ended up about 0.5%, and in Asia the Hong Kong Hang Seng was up about 0.6%. There wasn’t a whole lot of events in the markets last week and I think most traders used this time to take a breather given the many events already this year and they’ll (hopefully) be gearing up for the many more to come before it’s all said and done with. So, what’s left on the agenda then you ask?
Federal Open Market Committee
The big item remains the US Fiscal Cliff, and although the FOMC meets Tuesday & Wednesday to discuss this, you may remember from last week’s Money Matters that this could end up being postponed and thus might not get resolved at the scheduled meeting this week. I know, I know, it’s the last scheduled FOMC meeting of the year so if they don’t resolve it now then what happens? Certainly a lot of finger pointing and more delays, and potentially what this may cause for in the markets is more volatility as investors’ uncertainty around the situation collides with the urgency to resolve the issue. Regardless, whether now or later, I certainly feel that it will be resolved and markets will move on from this and investors should continue with their longer term strategies in the mean time.
Over in Asia, we’ve been seeing much stronger numbers being posted recently and they are waiting to push up their numbers but are hesitant to do so whilst the US Fiscal Cliff issue continues to loom. Fundamentally they’ll have to move up at some point but how long they wait to do this could be anyone’s guess. In the mean time, we’ve seen the spread between the S&P versus the Shanghai Composite Index grow to 70 points over the last three years! The basic premise behind this is, if you invested one dollar in both of these indices three years ago, your S&P dollar would be worth about 1.3 while your Shanghai Composite dollar would be around 0.60. We’re not saying this trend is going to change anytime soon but certainly the potential for growth here based on fundamentals does look good for Asia.
Shanghai Composite DollarIt could take some months to get back on a good growth track but there is still great value and opportunities in the market at this time and we continue to recommend a well balanced portfolio to all investors as we ride out the remainder of 2012 and some of the volatility and events that are still set for decisions or outcomes. Holdings in Emerging Bonds or High Yield Regions should continue to provide steady growth, while commodity, energy, and gold values continue to look cheap at their low prices thus making for good buying opportunities.
For 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.
Wishing you all a great week!
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com