January 20, 2012
Article from equities.com
Article from equities.com
Article from equities.com
Filed under: Currencies,ETF,International Investing,Wall Street — Equities Staff @ 8:30 am
The word “tumultuous” may be too dramatic a term to describe the events of 2011, but, for most investors, the year was filled with uncertainty. Uncertainty led to volatility in price movements from everything from securities to commodities and even to currencies. No sector was immune from the “whip-saw” gyrations in our financial markets. Many investors chose to withdraw and sit on the sidelines, but, for the adventuresome, the time may be right to screen for winners amid the chaos. Typically, one looks for insights from seasonal relationships or from general correlations, and then makes adjustments for the situation at hand.
Seasonal Insights
Experienced investors are more than aware of business cycles and how various sectors of the economy perform from a timing and historical perspective. These relationships, however, must be fine-tuned for geographical and situational aspects, but the data presented in the diagram below have stood the test of time.
Last year may have been a wild ride as an early recovery stalled and the European debt crisis grabbed the global center stage, but the latter part of the year did witness a gradual economic comeback in the United States. Stocks in Hong Kong did recover from their downward trend, but the temporary upward move in prices has been subdued, perhaps waiting for more favorable results from China to ignite a rally. The news of late has been positive from both the banking and energy sectors, as strength in these areas has bolstered a ranging market for most equities. Financials tend to move early in a typical economic recovery cycle, with energy stocks picking up steam as activity in the workplace expands.
Correlation Insights
In this era of globalization, our global markets have become more interdependent and interconnected than ever before. An investor can easily find evidence of these relationships by comparing price behaviors in various market indexes and locating patterns that move in a similar fashion. Exchange-Traded Funds provide the data for these types of comparisons, as noted in the diagram below:
Hong Kong stocks continue to lag behind the recovery forces that are building in the West, but the test will be whether the new momentum can withstand a lack of growth in Europe. Currencies have remained strong in Asia, as reflected by the Yen and Aussie Dollar trends above, but the Hong Kong Dollar, although it has maintained its position relative to the Greenback, has dipped some ten percent over the past two years when weighted versus its import trading partners. This lower valuation, however, has helped exports of late and also resulted in increased capital flows to the region. These trends can only improve when Japan and Thailand fully recover from natural disaster setbacks.
Recent economic data from China has also been positive, suggesting that their “soft landing” has occurred and that growth strategies may once again revive their economic engine. Australia funds much of the energy and raw material needs of this “engine, the apparent reason that the Aussie Dollar has appreciated in the last quarter. The Yen has remained strong, even with a slowdown in valuable electronic exports, but most of this strength has been attributed to the repatriation of foreign assets following the horrific earthquake and tsunami that hit the nation last March.
Concluding Remarks
Investors will have to look harder for potential winners in today’s stock market. Insights can be gleaned from seasonal and global correlations, but the road ahead is encumbered by many risks, primarily in Europe. Investors should remain cautious and expect a gradual recovery in prospects for the Hong Kong economy.
By Tom Cleveland, writer and market analyst for Forex Traders, an online resource for the foreign exchange market and currency news. He has over 30 years of experience in executive management, corporate governance and business development, having served as CFO for various Visa International entities from 1980 until his retirement in 1999. Tom’s writing on business issues has appeared in BusinessInsider, Business-Standard, and CreditWritedowns.
Article from equities.com