Stock market history shows that early in an economic cycle its best to just ride this through.
Where is the economic crisis? Stock markets predict many doom scenarios which never materialize. Is the Thai SET now doing this?
The world economy is doing well. Global output will expand some 5% this year and the IMF predicts the biggest rise (this year) in nearly 30 years. The US, while remaining stale, has pulled out of its slowdown. And the many dire predictions on a US slump earlier, have been wrong -so far. Ah les doomsayers got it wrong again.
China is likely to grow close to 9% this year and I dare to ask where is the hard landing so many including David Hale predicted a few months ago? Then there is Japan, the world's second biggest economy, its economic performance is best since 1990. Even old guard EU is looking firmer.
Even inflation is tame considering such strong global growth and high energy prices. IMF data confirms this. This is mostly because China is producing a huge amount of cheap consumer goods, for the world. For sure, China remains the wild card. Will it upward adjust its currency? Will inflation start accelerating beyond 6% (a critical level)? Will the Chinese authorities or high oil prices finally induce a sharper than expected slowdown? only time will tell, however an upward firming Chinese currency would be positive for corporate Thailand.
While many secondary Thai shares performed poorly this year, their earnings and long term dividend momentum seems little altered. For sure high oil prices will take some toll but does this justify their 40% or more, stock price correction? I think not. The correction is a balancing from the year before, where excessive returns were realized and hence some correction was likely to occur. Stock market history shows that early in an economic cycle its best to just ride this through.
Surely it would have been wiser to just sell out in January and accumulate now. I am sorry I did not grasp this correct view -by mostly advocating a diversified portfolio of values all along. At least I guarded my long held view to not get exited on the big caps, to underexpose the Banks and even picking some winners in a sea of corrections. Bumrungrad Hospital (BH), and the two petrochemical stock picks (ATC and NPC) and shipping TTA, did save a bit on an otherwise dismal performance. BH stock is up some 40% since writing favorably about this key selection.
More than a few walked away, licked their wounds and currently look like they did the right thing. But for how long?
As we clearly showed recently, by our various stock comparisons/valuations to an earlier similar period, many secondary value shares remain historically undervalued on the SET. Will that valuation discrepancy persist? Who knows… but if it does these as a whole, will keep returning far higher cash dividend rates than others -and so the long term investor (our model) will be rewarded regardless.
I still think oil prices above $50 a barrel is a "political trap" which will cost Bush the US election. There is more than a 50% chance Mr. Bush will be ousted in early November and then oil prices will start to drop, perhaps only slowly? In time a coming slowdown in China will help on this front.
The risk premium on oil is now too high, as just about the entire globe, not just the US, clearly wants Mr. Bush ousted. High oil prices besides a Dow Jones index below 10,000 will help this reality happen. only US citizens vote but high oil prices are voted on by global markets.
As always these are just my own views, but I for one am not throwing in the towel…
Best Regards,
Paul A. Renaud.
