Contrary to popular beliefs, US Fed rate hikes lead to USD weakening after around 6 months. It leads to US stocks rising. There is no impact on real estate prices. It continues to rise.
The reason that US Fed hikes rate is either the US economy is doing well, or inflation is very high; i.e. reflation or stagflation. We certainly are not facing stagflation because inflation has been benign. It is more likely the strength of the US GDP which causes the Fed to hike rates.
For emerging market equities, they tend to correct in the 6 months after US rate hike as corporates in EM struggle to service USD debt interest and principle repayments. However, after sharp corrections, EM markets bounce back.
This time round, I believe DM equities (US, EU and Japan) will perform well after the rate hike. EM will wobble for a while.
However, the upside in DM may be disappointing. I calculated the upside for MSCI World is only 8 - 9% for next 12 months. For the US, only 1%. For EU, 7 - 8%. For Japan, I expect around 24%. For Asia and EM, the upside is also a disappointing 10 - 13%, that is if the technicals confirm a turnaround.
Since I'm only 30% invested in equities, I may slowly load up until it reaches the 60% treshold. I will not increase beyond that.
Earnings is likely to decline in the US. For the EU and Japan, it is expected to rise as profit margins continue to widen. However, the biggest black box is China. Many MNCs increasingly depend on China's growth. China is sliding. Hence earnings growth may slowdown.
I believe there will be either a break up or down within 2 months. more likely it will be a break out. But the upside is likely to be mild, around 10% for DM. This means it won't reach the May's high. Could this mean that stocks remain range bound from here on until Sep 16?
The reason that US Fed hikes rate is either the US economy is doing well, or inflation is very high; i.e. reflation or stagflation. We certainly are not facing stagflation because inflation has been benign. It is more likely the strength of the US GDP which causes the Fed to hike rates.
For emerging market equities, they tend to correct in the 6 months after US rate hike as corporates in EM struggle to service USD debt interest and principle repayments. However, after sharp corrections, EM markets bounce back.
This time round, I believe DM equities (US, EU and Japan) will perform well after the rate hike. EM will wobble for a while.
However, the upside in DM may be disappointing. I calculated the upside for MSCI World is only 8 - 9% for next 12 months. For the US, only 1%. For EU, 7 - 8%. For Japan, I expect around 24%. For Asia and EM, the upside is also a disappointing 10 - 13%, that is if the technicals confirm a turnaround.
Since I'm only 30% invested in equities, I may slowly load up until it reaches the 60% treshold. I will not increase beyond that.
Earnings is likely to decline in the US. For the EU and Japan, it is expected to rise as profit margins continue to widen. However, the biggest black box is China. Many MNCs increasingly depend on China's growth. China is sliding. Hence earnings growth may slowdown.
I believe there will be either a break up or down within 2 months. more likely it will be a break out. But the upside is likely to be mild, around 10% for DM. This means it won't reach the May's high. Could this mean that stocks remain range bound from here on until Sep 16?
