The tension in the Middle East, the resistance of the British "Brexit" negotiations, the Italian government debt risk ... one after another obstacles in front of the US stocks bulls, become a heavy pressure.
In the 24th trading, US stocks fell again. At the close, the three major stock indexes fell between 2.4% and 4.43%, with the Dow falling more than 600 points. At this point, the S&P 500 index and the Dow have already retreated all the gains during the year.
On the 25th, US stocks opened higher and went higher. At 11 pm Beijing time on the 25th, the Dow rose 1.2%.
US stocks jumped up and down, and how should investors win this year's closing battle?
The Shanghai Securities Journal reporter interviewed Howard Marks, co-founder and co-founder of Oak Capital, Wu Jingjing, head of investment strategy department of Citibank (China) Co., Ltd., and senior fund manager Fei Deli of FabianaFedeli) and Pascal Blanque, Investment Director of Crédit Agricoal Asset Management.
They believe that the "bull market" that US stocks have continued for more than nine years has not yet ended, but has begun to enter the so-called "ageing stage", and investors' sentiment will become more cautious.
On the other hand, based on the attractiveness of valuation, emerging markets are welcoming buying opportunities, and the consumer goods, service consumption and infrastructure sectors in the Chinese market are favored.
How do you view the recent adjustments in the US stock market, and whether the “bull market” of US stocks still exists? What are the specific factors that influence the future trend?
Howard Max: The US stock market has continued for nearly a decade, during which we have seen a sharp decline in the market. For example, in August 2011, the US sovereign credit rating was downgraded; in May 2013, the then Fed chairman began talking about the flow. Sexual reduction; February 2010 is the worst year of any year.
These three time nodes are very similar to the current situation. Everyone thinks that the "bear market" is coming. But to judge, there are two key questions to be clarified: Is the market price relative to its intrinsic value high or low? Is the sentiment of market participants optimistic or pessimistic?
I personally feel that most investors today are still too optimistic. Considering the economic recovery situation and the “bull market” has entered the tail, the probability of future decline may be higher than the probability of rising.
Wu Jingjing: Citigroup believes that the “bull market” in which US stocks have lasted for nine years has not yet ended, but investor sentiment has become more cautious.
US stocks recently ushered in a sharp correction, mainly due to the short-term surge in US bond yields, trade disputes, investors evading US domestic political risks, and market concerns that listed companies' 2019 performance expectations are lowered.
From the fundamental analysis, the main economic data of the United States remains strong and significantly better than other markets. In addition, benefiting from tax reform, US corporate earnings are expected to grow by nearly 20% year-on-year this year, and credit conditions and valuations are expected to continue to support the US stock market.
However, if the US tax reform is weakened in the future, the Trump administration's fiscal stimulus will be constrained, which may have a certain negative impact on US economic growth and drag down the profitability of some listed companies.
In addition, as the Fed continues to raise interest rates, if the US bond yields soar again, it may trigger market panic and cause market volatility.
Pascal Blanc: The US stock market is expected to generate some "noise" in the short term. However, under the support of the healthy rotation of investment themes this summer, the medium-term market outlook is still constructive.
We found that concepts and sectors such as banking and telecommunications have the highest value and are cautious about the technology and real estate sectors. In addition, the strength of the US dollar is worrying and may affect the goods and transportation sectors.
How to predict the Fed’s future rate hike? What impact will this have on the US economy and the global economy?
Wu Jingjing: Citi believes that the Fed may raise interest rates in December this year. The final policy interest rate range for this round of interest rate hike cycle may remain at 2.75% to 3.00%. The Fed’s continued rate hike will leave room for future relaxation of the policy.
The Fed raises interest rates, the effect of the US tax reform subsides, and the United States imposes tariffs on trading partners. Under the influence of these factors, it is expected that the US GDP growth rate will slow down to 2.5% in 2019.
The Fed’s interest rate hike may continue to benefit the US dollar index in the short term, and the US dollar will continue to pressure emerging market countries with higher foreign debt levels. Although the impact of tariffs on US inflation may be limited, its impact will be transmitted through the supply chain, which in turn affects other economies such as Germany.
Federer: The Fed will continue to promote the pace of normalization of its monetary policy, and will raise interest rates again during the year. It is expected to raise interest rates three to four times in 2019.
The Fed’s monetary tightening cycle itself has not had a negative impact on the stock market, but a response to the global economic improvement. The key is that if the international trade dispute breaks out completely, other countries may be affected by the Fed's tightening policy when the global economic growth cycle reverses.
On the one hand, corporate profits of exporters and importers are affected. On the other hand, inflationary pressures in the United States will intensify, which will prompt the Fed to raise interest rates to curb inflation, leading to interest rate hikes that cannot match economic growth.
How to predict the performance of emerging markets in the fourth quarter? What are the investment opportunities? What are your recommendations for asset allocation worldwide?
Howard Max: There are three things to explain. I don't think there is a bubble right now. I don't think there will be a market crash. I don't think it should be realized now. Selling securities and holding cash is a black and white practice. If you choose the right one, you can avoid the shock. If you make a mistake, you will miss a good growth opportunity. It is difficult to profit from the market.
Considering the uncertainty of the market, if we adjust the portfolio slightly and adopt a defensive investment strategy, even if the market declines, it can play a protective role, and if the market rises, it can benefit from it.
How to increase the defensiveness of the portfolio without selling the assets to hold cash? I believe that you can choose large-scale established companies, safe and high-quality companies, investment value stocks and so on. In addition, it can increase bond holdings, hold shorter-term bonds and higher quality bonds and buy more developed market bonds.
Wu Jingjing: Year-to-date, emerging markets have been adjusted by the strength of the US dollar, trade frictions and internal risks in some emerging market countries, but we remain optimistic about the performance of emerging markets in the future.
According to historical data, in the 12 months before the “bull market” peaked, non-US stocks performed significantly better than US stocks, especially in emerging market stocks. Currently, the market may be in the late stage of the current economic cycle, and emerging markets are expected to rise. opportunity.
From a valuation perspective, the price-earnings ratio of emerging market stocks in 2018 may be only 12 times, while the US stock market price-earnings ratio may be as high as 17 times. Due to the low valuation of emerging markets and the optimistic long-term economic growth prospects, we are optimistic about the performance of emerging markets in the fourth quarter, especially in Asia.
In emerging markets, we believe that markets and industries with good fundamentals and previous oversold are expected to attract more capital inflows. In addition, we are more optimistic about the long-term performance of the Chinese market. In the current policy environment, there are certain investment opportunities in the consumer goods, service consumer industries, capital goods and raw materials related to infrastructure.
In addition, it is also in the valuation and growth prospects, we are optimistic about the performance of European stock markets in the future. As far as the US market is concerned, as the tax reform effect subsides, the subsequent US economic growth may slow down, so we have a neutral allocation to the US.
Federer: In the long run, emerging markets are facing a good buying opportunity. In the short run, emerging markets need data driven. As far as global stock markets are concerned, in developed market portfolios, based on relative valuations, we prefer the European and US markets. In the European market, we are optimistic about the stocks of the cyclical and financial sectors.
In the Asia Pacific portfolio, we are more optimistic about the Japanese market. Supported by factors such as record profits, improved corporate governance and improved shareholder returns, the Japanese market is expected to hit new highs.
In the overall emerging market equity portfolio, we currently hold positions in the Korean, Chinese and Russian markets, with fewer holdings on Peru, Indonesia and Hungary. Recently, we have also added positions to the Mexican market.
Pascal Blanc: The factors supporting the holding of short-term positions on US assets are fading, and it is time to reduce short-term investment bias toward such assets and move to Europe and Japan. For emerging market bonds, short-term volatility may continue, but valuations have become attractive.
In terms of stocks, valuation as a supporting factor has not worked in the past 12 months, but we now expect this trend to reverse. Therefore, we are turning to the value theme of the US stock market.