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July 28, 2018
Huang Peifen
Financial Plan
pointed out in the latest issue that the stock market has risen in July, as of July 24, the major stock markets have recorded an increase, the # 39, together and the last 10 years The average performance in July was similar [Figure 1]. The best performance of the major stock markets was the US stock market, which was the best in technology and health care, up 5.54% and 5.12% respectively.
Figure 1: Comparison of the performance of the major stock markets in July and the average performance of the last 10 years
US stocks are not exhaustive
Will there be another wave of bullish waves in the second semester? Driven by cyclical stocks. The cyclical / defensive sector cyclical ratio in the major regions of the world peaked at the end of last year, at present, only US stocks have not experienced a wave below the wave [figure 2]. Risk on other stocks, which makes the defensive sector more efficient than the cyclical sector. US stocks took advantage of last year 's tax cuts, corporate profits were raised, investors were optimistic about US stocks, especially technology stocks, but the increase was mainly concentrated in several important actions. During the first half of the year, the S & P 500 index rose by 2.65%, if we exclude the FANNG, it recorded a decrease of 0.73% [Figure 3] which shows that the uptrend is not complete.
After the Facebook incident, European and US governments have tightened the regulation of online privacy, which will affect the business model of Internet businesses that rely on large data from customers. It is difficult for US equities to rely on FANNG to support the uptrend. After the financial tsunami, US equities rose sharply and outperformed other major stock markets, with the strongest generally being the last to be at the top of the rankings, with US stocks falling behind.
Figure 2: Performance of the cyclical relative defensive sector of major stock markets
Figure 3: Contribution of FANNG to the first half of S & P 500 returns
Source: S & P, Bank of Canada America Merrill Lynch
[19659007] The suffocation curve is upside down or in October
The bond yield curve is upside down, and the economic recession can be predicted accurately, with an average of 14 months. The stock market peaked at 8 months on average. The market is mainly powered by large-scale technology stocks, which looks a bit like the 2000 network frenzy. Two months after the fall of the asphyxiation curve in 2000, the S & S index P 500 has reached a peak. For example, if the Fed raises interest rates by 0.25% in September and maintains rising interest rates at the end of the year, the yield on two-year bonds could reach more than 2.8%. The yield on 10 – year bonds will hold at current levels, and the opposite will be the case in October, suggesting that US stocks will peak at the end of the year.
There are two news that could push the 10-year bond rate higher and delay the moment when the asphyxiation curve is upside down. The first is that the Bank of Japan intends to tighten monetary policy ultra-loose, which will make the yield curve recover strongly. Japanese funds currently hold up to $ 2.4 trillion in bond badets abroad, which will attract funds to Japan and put pressure on the foreign bond market, the rate of US 10-year bond yield in excess of 2.9%. Long-term debt will be reduced.
The second is that some media reports that the underfunded US company's pension plan could be invested more in mid-September to increase the purchase of bonds and aim for better tax benefits. Assuming that the additional funds will rise to $ 100 million, the tax will be reduced by 35 million yuan and if it is implemented after mid-September, the new tax system will save only 21 million dollars. yuan. At present, there is 680 billion yuan in the financing gap of listed companies. The author estimates that while most companies use this offer, the yield on 10-year bonds remains difficult to increase in the third quarter. These additional needs will disappear after mid-September, when the debt can resume and the suffocation curve is delayed.
A shares can be deployed in the medium and long term
In summary, it is estimated that the latest wave of US equities could appear in the fourth quarter and that US equities have performed better on average than in the past. 39, October to April. The author is currently inclined to defend, mainly health, infrastructure and money market funds, health care funds have a stable income from pharmaceutical stocks, but also growth like biotechnology stocks, the population aging and increased demand for medical care. Potential The infrastructure fund is primarily invested in mature market infrastructure, with stable earnings and dividends, much like public stocks. The author will also look for opportunities to increase Chinese A shares and emerging market equities for medium and long-term deployment, due to cheap valuations and investor pessimism.
Disclaimer: The information provided for information purposes does not constitute investment advice or solicitation. The author has done everything in his power to ensure that the information provided is accurate and reliable. , without precision or reliability. No warranty is required to be liable for any loss or damage caused by an inaccuracy or omission. Investment involves risk, the price of funds may increase or decrease, and past performance is not a guide to future performance.
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