Vicks Poon sees stocks to rise on technical support for the coming weeks

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Vicks Poon, First Vice President and Head of Investment Advisory at Fubon Bank (Hong Kong)

By Emily Lai

Market sentiments improved last week, with major indices recovering benchmarks. The Hang Seng Index rose 2.6% back to the 23000 level; the Shanghai Composite Index jumped 6.5% heading towards 3400 and S&P 500 recovering the 2000-point level after the tumble mid-week. Vicks Poon, First Vice President and Head of Investment Advisory at Fubon Bank (Hong Kong), is optimistic about the short term equities market, but only on the technical aspects.

The main reason for the optimism comes from the market oversold. The market fell in August mainly due to two concerns: the Fed rate raise and RMB depreciation, and worries have been lessened in the past months. The market U-turned on the view on the Fed hike, not only pushing the timing back to next year; but also revisiting the actual chance of a rate hike. For the RMB side, the exchange has been stabilized and the gap between the onshore and offshore prices is now smaller, putting less pressure on the PBoC to further manipulate the currency. Poon believes the easing of the worries, together with the 5th Plenary Session of the 18th Central Committee taking place at the end of the month, pave way for a safer investment environment for the first Q4.

However, looking from the fundamentals perspective, global economic data is not showing a bright picture. Retail numbers are especially alarming in the US as 70% of the GDP is made up of consumption. Market tumbled last week after Walmart’s profit warning and forecast and the inventory to sales ratio hits levels close to recession. “Walmart’s performance is a warning as it is not a luxurious brand,” he says. “Middle and low level sales take up much of the consumption when the economy is not so solid; Walmart’s profit warning shows that people are not willing to spend money, and that is because the quality of employment has not been improved,” he says.

He thinks the Fed has been too stubborn just looking at the quantity of new jobs created in the market instead of the quality. If the jobs created cannot sustain the economy, a rate hike would create further negative impact to the economy. He would be keeping an eye on the Fed to see if it would change bias in the near future, at least to stop mentioning about tightening, or even need to loosen the policy again. BM

Poon recommends a short term strategy before the end of the month:

Equities:

  • China and Hong Kong markets safer than US
  • Can buy on Chinese policies, including lowering of interest rates or required reserve ratio
  • No need to take all profit at this stage
  • Can buy on dips before month-end

 

Fixed Income:

  • US 10-year bond yield back to around 2% level showing market’s anticipation of a delayed rate hike
  • It would drop below 2% only if there are new negative issues in the market, e.g. if US GDP fall below 1%

Currencies:

  • The USD has been weakened in the past months; the market is pricing out a Fed rate hike. If the Fed changes bias and stop mentioning about tightening, the USD would drop further
  • EM currencies quite low and have a chance to rebound

Commodities:

  • Positive due to the downward trend of the USD