There is an old adage in stockmarkets: “Sell in May, go away, buy again on Michaelmas Day” (end of September).
Very often, it is a good strategy although for the past three years it would have been inappropriate.
In general, global stockmarkets have enjoyed excellent growth since early March 2009.
Obviously, stockmarkets are unlikely to continue on a pure upward trend but there are reasons for continued optimism.
Ben Bernanke, Chairman of the US Federal Reserve, Central Bank, gave testimony to Congress in mid April 2010. In his testimony he painted a picture of the US economy continuing to show signs of economic expansion combined with very low inflationary pressures. These economic conditions are perfect for a stockmarket rally and it is hardly surprising that stockmarkets have posted such significant gains.
It is still very likely that this trend will continue. Low inflationary pressures mean there is no haste to raise interest rates. Ben Bernanke has made it adequately clear that the “Fed” has no intention of derailing the economic recovery. He is more than aware that economic policy must have as its overriding objective the recovery of the US economy. Therefore, the Fed will keep interest rates at lows not seen in over half a century. There is a very real fear that higher interest rates could derail the recovery as happened in 1937.
It is an indication of how serious the recession has been and, for millions of people in the US and other countries, still is.
Stockmarket behavior is one of the more minor concerns of the “Fed”. Stockmarkets tend to be discounting mechanisms and with interest rates at near zero there is little to stop the current “bull market”.
In Asia the situation is somewhat different. The recession did affect all countries but there is growing evidence that economies are starting to grow strongly. A number of factors are involved; Asia’s banks did not participate in any of the irresponsible lending of the West and are naturally in much better shape to meet the recovery. The personal savings rate in Asia tends to be very high, Asians are less likely to be heavily indebted.
Part of the reason is that in most Asian countries, social welfare nets offered by governments are not nearly as generous as is the norm in the West.
In Asia welfare has traditionally been dealt with by families. However, this is rapidly changing. One of the main factors is birthrate; most Asian countries have seen their birthrate slow dramatically and this is combined with longer life expectancies.
The continuation of the economic miracle in Asia also helps the West. The last economic downturn of this severity was felt in the 1930’s, this time around the West has a resilient Asia as a market for goods and services.
China surprised most analysts by announcing that economic growth in the first quarter of 2010 reached 11.9% annualized. This was higher than expected although many economists believe these figures are still being inflated by the Chinese Governments stimulus package. China also announce that its latest trade figures actually reflect a deficit with imports being higher than exports.
This, naturally, means that the Chinese Government has a good reason not to allow their currency to appreciate against the US Dollar, at least in the short term.
Thailand is a beneficiary of all that is happening and economic growth was expected to reach at least 6% this years. Naturally, the inclusion of Thailand’s civil unrest in Bangkok has had a dampening effect and it is expected to trim 1% - 2% off growth.
Recently, I have made two trips to Malaysia and was surprised at the number of Malaysians who simply could not understand why the people of Thailand did not seem to be concerned about the damage to their economy. Another point frequently raised is how important foreign investment is to their economy.
For investors, the current global economic situation has much to commend it; the This is a good time to invest – to paraphrase Warren Buffet: “Be brave when others are fearful and fearful when other are brave combination of growth together with low inflation is probably as good as it gets. This is certainly a scenario that will allow further gains to be made. Naturally, these gains may end up with very expensive stockmarkets; already very few stockmarkets could b e viewed as “cheap”.
This is a good time to invst – to paraphrase Warren Buffest: “Be brave when others are fearful and fearful when others are brave.”