Fubon Bank’s Poon Stays Conservative Ahead of GDP Data

 

Fubon-Bank-Vicks-Poon-photo2

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

Poon will be more conservative in his portfolio for this week.

Equities:

  • Take profit if stock is reaching a high level and keep a wait-and-see approach
  • The US stock market had performed well after the Greek agreement, but is now dragged down by corporate earnings
  • A fall in the commodity market is usually followed by one in the equities market

Currencies:

  • US dollar will be strong until the first move of the Fed
  • British pound would be supported by the forecast of a rate hike
  • Japanese yen would perform moderately given the strong US dollar and that the BOJ is not likely to expand QE
  • Commodity currencies dragged down by commodity prices and will continue to underperform

Fixed income:

  • Short term bond yields rose after Yellen hinted on a rate hike, but long term yields continued to drop
  • Long term high-grade bonds are attractive given the economic growth concern and the deflationary pressure
  • US treasuries and German bonds can generate good profit given the rise in bond price, despite the drop in yields

Commodities:

  • Fundamentals of oil are weak with oil producers increasing supply to maintain their market share and demand dropping, especially from China

 

By Emily Lai

Oil prices are again below USD$ 50 level and gold is extending losses to a five-year-low. Vicks Poon, First Vice President and Head of Investment Advisory at Fubon Bank (Hong Kong) tells BENCHMARK that the drop signals a wider concern over China’s economy and global deflationary pressure, thus, GDP data this week from UK and US will be in the spotlight.

The Caixin China Manufacturing PMI surprisingly dropped to a 15-month-low in July and other economic data is not catching up. “Foreign investors are now questioning if the 7% GDP in Q2 is the real picture,” he says. “They are worried of the contagion effect and the impact on the global economy, if that is not the case.”

Being the third largest importer in the world, the slowing down of the Chinese economy would bring along global deflationary pressure and this might affect the Fed’s decision to bring along the rate normalization process. “The IMF and the World Bank have already suggested the US to postpone the rate hike, and that is actually the right thing to do.” says Poon. “The drop in commodity prices and the rise in the US dollar will bring along further deflationary pressure. The Fed is putting too much focus on the labor market and overall economic data has not been supportive of a rate hike. The Fed might have to stop, or even lower the rates again, early next year even if they start raising it this year.”

The FOMC will hold a meeting this week, with US Q2 GDP out the following day. Q1 GDP of -0.2% was a shock and the market is now forecasting growth of at least 2.5% in Q2.

The UK’s GDP will also be out this week. With its yearly GDP growth forecast revised to 2.7%, the Bank of England is likely to follow the US and be the second major central bank to raise rates. “Situations in the US and the UK are quite similar in that the economy is not that solid,” Poon shares. “Property markets in both countries do perform well, but retail sales are weak. I am just wondering if central banks can be going in two opposite directions given the close connection of markets nowadays.”BM

You may also like