1. ECB has just launched LTRO. It is lending cheap cash to banks which in turn have to lend it to SMEs. This will boost the Euro economy.
2. ECB has not finished easing yet. I reckon the central bank could engage in QE for another year as even "core European" countries are falling into a recession.
3. Europe's valuations of 17x historical is not cheap. But earnings are likely to be 15 - 30% at the inflexion point in 2014 and stabilise to 7 - 14% thereafter. I expect the stock markets can give around 10 - 20% return in 2015.
4. The US is recovering. QE is ending. we will see a long period of interest rates staying flat, until perhaps mid 2015. The most important signal by Janet Yellen is that overnight rates will end up at 1.35% end 2015. This is a 1.10% climb in interest rates. The S&P500 will grow by around 5 - 15% in 2015 because PE multiples are already at the 1 standard deviation above median mark. Anything beyond that would be a bubble and I would exit, which I haven't.
5. China is a big worry, as it tries to balance between stimulating the economy and preventing a bubble. There is a lot of infrastructure spending required in Inner China. But in coastal China, most of the infrastructure is world class. In fact, too many homes are already built. Because construction accounts for around 40% of GDP, I expect China's GDP to actually, REALLY grow by between 4 - 7%. The SHCOMP should rise by around 15 - 25%, driven by PE multiple expansion because it is 1 standard deviation below median, and earnings growth should come in at between 8 - 15%.
6. As the pace of construction slows down, Australia and other mining countries' exports will surely be hit. The AUDUSD is projected to fall to 0.85 according to RBA. I expect USDSGD to push up to 1.33. If I assume a range of 1.26 and 1.33 USDSGD, AUDSGD will range between 1.07 and 1.1305. If I take the mid point of the range, which is 1.10, AUDSGD has another 2 - 4% to fall.
7. The bond market will not unravel in early 2015. the interest rate differentials with Eurobonds will still prevent US Treasuries from climbing to high. When ECB ends its easing, we could finally see long term rates sky rocket. Perhaps the 10-yr UST will reach 2.6 - 3.0% in mid 2015, 3.0 - 3.9% in end 2015, and 4.0 - 5.5% in 2016. The SGD bond market will start to unravel in 2H2014 as retail investors stupidly bought low yielding bonds and leveraged to the hilt.
8. Real estate in Singapore will see no respite. Some policies might be rolled back in 2015, but the plunge in rents, rise in mortgage rates will offset the positive policies.
my money is in continental European properties first, followed by US properties. London properties will start to fall slightly from 2H 2015 onwards because of higher mortgage rates. Melbourne, Sydney and Brisbane will peak in end 2015 as fresh supply hits markets. Malaysia will plunge at a sharper pace than Singapore's as higher mortgage rates cause investors to dump properties.
All assets that blew to record high valuations (low yields), due to unnaturally low interest rates will start to unravel. I'm thinking real estate and investment grade bonds.
I believe disasters related to Global Warming, e.g. food supplies, water and sea levels, will hit the headlines more often from 2015 onwards.
2. ECB has not finished easing yet. I reckon the central bank could engage in QE for another year as even "core European" countries are falling into a recession.
3. Europe's valuations of 17x historical is not cheap. But earnings are likely to be 15 - 30% at the inflexion point in 2014 and stabilise to 7 - 14% thereafter. I expect the stock markets can give around 10 - 20% return in 2015.
4. The US is recovering. QE is ending. we will see a long period of interest rates staying flat, until perhaps mid 2015. The most important signal by Janet Yellen is that overnight rates will end up at 1.35% end 2015. This is a 1.10% climb in interest rates. The S&P500 will grow by around 5 - 15% in 2015 because PE multiples are already at the 1 standard deviation above median mark. Anything beyond that would be a bubble and I would exit, which I haven't.
5. China is a big worry, as it tries to balance between stimulating the economy and preventing a bubble. There is a lot of infrastructure spending required in Inner China. But in coastal China, most of the infrastructure is world class. In fact, too many homes are already built. Because construction accounts for around 40% of GDP, I expect China's GDP to actually, REALLY grow by between 4 - 7%. The SHCOMP should rise by around 15 - 25%, driven by PE multiple expansion because it is 1 standard deviation below median, and earnings growth should come in at between 8 - 15%.
6. As the pace of construction slows down, Australia and other mining countries' exports will surely be hit. The AUDUSD is projected to fall to 0.85 according to RBA. I expect USDSGD to push up to 1.33. If I assume a range of 1.26 and 1.33 USDSGD, AUDSGD will range between 1.07 and 1.1305. If I take the mid point of the range, which is 1.10, AUDSGD has another 2 - 4% to fall.
7. The bond market will not unravel in early 2015. the interest rate differentials with Eurobonds will still prevent US Treasuries from climbing to high. When ECB ends its easing, we could finally see long term rates sky rocket. Perhaps the 10-yr UST will reach 2.6 - 3.0% in mid 2015, 3.0 - 3.9% in end 2015, and 4.0 - 5.5% in 2016. The SGD bond market will start to unravel in 2H2014 as retail investors stupidly bought low yielding bonds and leveraged to the hilt.
8. Real estate in Singapore will see no respite. Some policies might be rolled back in 2015, but the plunge in rents, rise in mortgage rates will offset the positive policies.
my money is in continental European properties first, followed by US properties. London properties will start to fall slightly from 2H 2015 onwards because of higher mortgage rates. Melbourne, Sydney and Brisbane will peak in end 2015 as fresh supply hits markets. Malaysia will plunge at a sharper pace than Singapore's as higher mortgage rates cause investors to dump properties.
All assets that blew to record high valuations (low yields), due to unnaturally low interest rates will start to unravel. I'm thinking real estate and investment grade bonds.
I believe disasters related to Global Warming, e.g. food supplies, water and sea levels, will hit the headlines more often from 2015 onwards.
No comments:
Post a Comment