Equities market could advance further in coming weeks

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Thomas Chan, Managing Director at Able Alliance International

By Emily Lai

Waters have calmed in global markets last week with support from the accommodative speech from the European Central Bank and positive earnings results in the US. Thomas Chan, Managing Director at Able Alliance International, thinks sentiments in the market have changed and equity markets could go further in the coming weeks.

China has released its GDP data last Monday with a better-than-expected 6.9% growth in the 3rd quarter. Chan describes the figure as “the best it can get…We have expected that the number to be below 7%, and 6.9% is the highest you can get,” he says.

He believes a range of 6.5% to 7% growth is acceptable by the Chinese government and they would put on policies to keep the data in the range as soon as needed. However, no big-scale policies would be implemented because the government would not want to see the economy being over-heated again.

Another boost to the market came from the statement of Mario Draghi, President of the European Central Bank (ECB). He says the Bank is prepared to lower its already negative deposit rate and expand quantitative easing to prevent the risk of another round of economic slump, as weak emerging markets are affecting the sustainability of growth of the Euro area. Chan says that the market is actually buying on a weaker European economy now as they expect the ECB to take further action, but this expectation supports the market as it clears out some of the uncertainties from the Fed. “Although we do not expect the European economy to improve, at least it keeps the party going,” he says. “Even if the Fed is to raise rates now, the ECB would be taking up the role to ensure global liquidity and this is comforting to the market.”

With the change in sentiment, Chan believes further advancements can be seen in global equities market, and he recommends holding cash and equities for the coming weeks. BM

He shares with BENCHMARK his strategy for now:

Equity:

  • Time to buy in as potential would be unleashed given the change in market sentiment
  • Equity prices traditionally rise with ensured liquidity
  • Prefer developed market as emerging markets are still affected by China
  • US: quarterly earnings better than expected, expectations not high and anticipates more companies to beat the target
  • Tech sector jumped after earnings report but need to be cautious on over-optimism in the market

Currency:

  • Euro would be posting the biggest drop against the USD in the near future
  • The USD expected to be boosted but may slow down when the Dollar Spot Index approaches 100

Fixed Income:

  • US bonds not the top choice for now as they are just trading in a narrow range
  • Chances of a bond yield spike is slim and bond prices are negatively impacted by an increase of risk appetite

Commodities

  • Fundamental factors not supportive with the US dollar expected to rise and global economic growth being modest
  • Oil: not attractive unless supply is further reduced
  • Gold: no robust anticipation with the rising US dollar and low inflation, the only positive factor being Europe’s potential expansion of QE