In my most recent post in early October, I suggested maintaining a long position in equities as an asset class. However, recent divergence of performance of momentum vs value stocks has given me signals that market momentum is stretched and will soon correct. I would suggest a move into cash or high quality fixed income instruments until early 2014 given in the past where such observations surfaces, volatility in the global market picks up and equities will have a biased to the downside.
For the past few months I have read many articles, reports and media coverage expecting a huge equity bear market to emerge? I am not convince once again despite the out performance this year. If you look at the reasons given by many experts out there predicting the end of the bond bull market many years ago; you will see the similar arguments now on equity markets. Small groups cited technical readings, some citing emerging market weakness lead by BRIC while a large group out there cited valuations. My philosophy to investing have been centered around relative value and opportunity cost of capital. Modern capital cares little on rising interest rate effect on equity valuation just as it ignore the valuation when interest was on decline for the past decades. This is because modern capital ignores valuation in the long term but instead concentrates on relative performance in the short term despite many participants continue to use medium/long term valuation to predict richness/cheapness of investments. Forward yields on Global Equities has been trading at the widest spread to government bonds for a long time and the time has come to narrow as capital now sees potential of relative out-performance. Even if my analysis is wrong, try using traditional financial methods of “Present Value” back the cash flow of equity yields versus bonds. Can you see how high the floor is? Hence, don’t jump, sit back and let the rising floor lift your returns.
An old video of my interview with Bloomberg TV discussing the development of RMB Bond Market
Dear friends, colleagues, readers and followers,
I am pleased to inform everyone that I have embarked on a new and exciting journey in my career. Over the past 5 years, many of you have come up to me to suggest that I am to start my own hedge fund as you all feel I have the right ingredients and passion to succeed. I am grateful for the confidence and encouragements. Many of you said I have great people skills, excellent grasp of the investment world, while some of you even said I know how build successful teams and companies and finally some of you know I have the love and passion for investing. It is the love and passion of investing that landed me in Hong Kong 10 years ago and it is the same reason I have started my own hedge fund with 2 other partners recently. The journey will be challenging nevertheless, but I am sure it will fun, fulfilling and intellectually rewarding. Our firm’s name is Ark One, and I sincerely hope some of you would have the opportunities to embark on this beautiful journey with me, my family and partners.
On this note, I need to disclose that due to compliance and governance reasons, I have to restrain from commenting on specific trading/investment strategies, views and picks. However, I will continue to provide the readers of my blog, the perspective of investments and the world from a brown leather chair in the comfort of my home.
One of my biggest call in 2013 is for
This summer points to a turning point of certain investment trends which lasted for almost a decade. The continuous rise of yen versus global currency, the ever lowering of government bond yields etc. This week marked one of the most volatile weeks in 2013. I am not entirely surprise as investors and traders are moving back and forth from traditional easy trades to some which require a holistic view of the world in years to come. Is it tough psychologically to decide, hence the erratic price movements. The dip of USDJPY and UST 10yrs Yields this week was quickly reversed last night. Be prepare for more similar days this year but last night’s movement on the back of OK economic data out of the US reaffirmed my view that the trend has reversed but it is not without volatility. One advice; avoid the crowded trades and use less popular instruments to achieve your investment objectives. USDJPY at 104 was crowded but less so at 96.00 if you get what I mean…
You Must Be A Good Thinker” Joseph Yap 6 years and 11 months old
The fall in Japanese Yen for the past 3 months has caught many people by surprise and with its magnitude of fall (-15% against major global currencies) is it undoubtedly one of the best/worst performing investment assets for many people in the same period. Why is it falling the way it did? Is it because the world’s economy is picking up again? Is it because risk appetite is back again? Is it investors selling yen because they think its over-value? Is it the return of the carry trade? All these reasons might explain the fall in Japanese yen we have seen recently. But then again from 2003 to 2007 when the global economy was ragging and risk assets globally appreciated in value, the Japanese yen actually held its value against major currencies. So what could be different now? Despite the fall in the value of the Japanese yen in the past 3 months, the currency is still 25% stronger against USD, 10% stronger against EUR and almost 35% stronger against KRW in the past decade and that is the root of the cost. The carry trade is a result and not the cause if you like deeper. One would get similar cheap funding monies from EUR/USD/HKD/SGD/CHF etc
The strong yen in the past 10 years has caused a huge imbalance for Japanese corporations causing their competitiveness to fall against global peers. We have seen the rise of German automakers, Korean electronics and European consumer care companies in the expense of Japanese counterparts during this period. The strength of the yen has also discourage Japanese companies’ investments overseas in favor of a more domestic strategies during this period. With this strategy in mind, Japanese companies and financial institutions have in the pass decade favor a “long” yen position naturally.
With burst of the US subprime bubble and the European Sovereign Debt Crisis, the global imbalances have started to correct itself and with the natural force of nature and economics this would reverse the strength of yen we have seen in recent times. I would expect yen would at least need to fall by the magnitude it has risen against USD, EUR and KRW over the next few years for its products to be competitive against in the global landscape. At the same time it would encourage financial institutions in Japan to expand their business overseas and lend a higher proportion of their money outside Japan as well. Therefore, eventhough the yen has fallen 15% recently…it might have a long way to go if one is to take a longer term view..