As the US elections (8th November 2016) draw closer, almost the entire world and especially investors are watching the elections closely. While the results might not directly concern the world, the future of the global economy might pretty much depend on who becomes the next US leader.
Aside from the US elections, the US stock market bull run has been going on for seven years now. One might question, the interest rates, core inflation and employment rate in the US were less than desirable, to say the least until recently, so are stock prices really a reflection of fundamentals or pure optimism (and delusion)?
How will all these affect the eastern side of the world, namely the Asia-Pacific region and more importantly, China? To answer these questions, local stock guru and investment trainer Daniel Loh shared some of his insights and perspectives for retail investors like us.
Daniel will also be speaking at our half-yearly Shares Investment Conference 2H2016 (Mandarin event) to cover these topics in more detail, alongside other investment experts such as Dr. Chan Yan Chong, Pauline Teo from 8I Education and Margaret Yang from CMC Markets.
US Stock Market Might Face Correction in Nov or Dec Regardless Who Wins
In Daniel’s opinion, the US stock market is indeed due for a correction, especially when a Fed rate hike happens – the question now is when and not if. The only reason for the delay in a Fed rate hike is the election. Daniel says that the Fed is doing this for Hillary.
Nevertheless, regardless of who wins the US election, there is a good chance that the stock market will face a correction in November or December. As such, Daniel thinks this might be a good opportunity for retail investors to pick up some corrected but fundamentally strong US stocks.
In the longer term, however, Daniel (and many other economists and investment experts) thinks that Trump’s economic policies are bound to hurt Asia and of course, Singapore. Most of Trump’s proposed policies are pro-US and anti-Asia.
Some include lowering corporate taxes to compete with Hong Kong and Singapore; building the US to be energy-independent and cutting on oil imports; slapping tariffs on Chinese goods to go in a trade war with China; and slapping taxes on US companies that outsource their manufacturing outside of US among many other pro-US, anti-Asia policies.
Daniel acknowledges Trump’s goal of bringing more jobs back to the US and to stop China from becoming the number 1 economy in the next decade. But this economic warfare, in Daniel’s view, would hurt Asia and indefinitely, Singapore too, affecting multi-national corporations’ decisions to set up offices and creating employment opportunities for Singapore.
On US Bull Run: Remember This One Thing
BULL V BEAR
As for the US bull run, Daniel explains we must remember one thing: stock prices is not a reflection of the fundamentals of the companies but rather, a reflection of stocks performance compared to market expectations.
Thus, as long as interest rates remain low, he would not be too worried about the US stock market’s health. Money will continue to return to the stock market as long as corporate earnings continue to beat market expectations.
However, he still thinks that a Fed rate hike is something we should keep a close watch on – when interest rates rise, investors start to realise stocks can no longer outperform market expectations. That is when the US stock market will head for a correction, at the very least.