By DAR Wong
Shortly over the first quarter in 2019, we have seen major stock indices growing generally by about 10 to 15 percent worldwide. Some strong growth indices in Asia like Hong Kong and China have climbed into the region of average 20 percent gains. By April 2019, Singapore FTSE STI has gained about 10 percent; U.K. FTSE 100 has climbed 11 percent; Dow Jones benchmark has risen 14 percent. Apart from this, the outstanding performance goes to Hang Seng Index which has ascended 18 percent, only to be eclipsed by Shanghai Composite Index’s 28 percent growth.
Most retail investors are excited and prepared to see higher highs. However, professional traders begin to ponder if we genuinely have that kind of economic strength to drive stocks higher or should we strategize a plan to mitigate risk.
Looking at the general trend, we are quite sure of additional gains in worldwide blue-chip equity prices and commodity prices since the US 10Y-Bond yield is still a distance away from 3.25 percent. At the current 2.5 percent, there is a space for another 3 rate hikes (of 25 basis points) before the US interest rate could reach 3.25 percent level. From another angle, the Dollar index (USDX) may be sitting bit high above current 97.00 region while the US and China are having negotiations to iron their trade differences.
From 2Q19 season onwards, we expect the Dollar to be prone to fall due to limited upside room (beneath 100 level benchmark). Moreover, Crude prices are set to run higher and probably climb into US$70 – US$75 /barrel before year-end due to the strong desire of OPEC leaders in lifting the oil demand. Therefore, a continual rise in commodity prices are more likely to emerge compared to the upside potential of stock indexes.
In broadest aspect, Crude and Precious Metals are in our favour this year for anticipating more gains. By looking into these instruments, did you realise that WTI Crude has risen more than 40 percent since January but Gold and Silver are still flat and slightly negative in yearly gains? Hence, it has been spelled quite clearly that Crude will lead the bull-run in commodity sectors but Precious Metals will probably catch up once oil prices reach plateau sometime in 3Q19.
This year, staking on commodity stocks are a better bet than any other sectors. By spreading your portfolio onto selective energy-producing companies and jewellery retail businesses in China, Hong Kong and the US markets, you would have made an average handsome 30 percent growth for the first 4 months of 2019. Some of these instruments include Shenhua Energy (601088.CN), Yanzhou Coal Mining (1171.HK), Luk Fook (0590.HK), UCO ETF (NYSE) etc.
Looking into Europe fundamentals, the BREXIT execution has been delayed till end October. We reckon heightened volatilities will surface in global markets in 2H19 as we face BREXIT complications, resurging sovereign debts in Europe, possible rise in US Bond yields, unresolved trade war conflict or any other black swan. Hence, it is good to pre-empt the move early and set up new investments in commodity and energy stocks at current moment, while taking advantage of potential rise and plan for exit when volatility whipsaws in the final quarter!
While stock indices might have limited rooms to rise further with an additional 10 percent or whatsoever range, the knowledge to select some undervalued stocks in commodity sectors will be wiser to fish for good profits with hind sight of falling Dollar. By sticking to the commodity stocks on broader base, there could be another potential profits of more than 15 percent to be made in coming months when greenback recedes.
Generally speaking, there should be not much risk in major equity markets as long as the US 10Y Bond yield still lingers beneath 3.25 percent. Trade well and move on to fatten your pockets while you can.
~ DAR Wong is a veteran in global financial markets based in Singapore. The opinions are solely at his own. He can be reached at firstname.lastname@example.org