Transcript 16 July 2010 - NRA Capital

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Investment strategy for a
volatile market
…
Kevin Scully, 16 July 2010
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Investment strategy for a
volatile market !!
Correction in 2010 is modest compared
to gains in stock markets in 2009…
Jan 1
2009
Dec 31
2009
% change
Jan - Dec
Jul 16,
2010
% change
Jan – Jul
Dow Jones
9034.69
10428.05
15.4%
10359.31
-0.7%
Nikkei 225
9043.12
10546.44
16.6%
9530.49
-9.6%
Hang Seng Index
15042.81
21872.5
45.4%
20207.98
-7.6%
Shanghai
Composite
1880.71
3277.12
74.2%
2392.46
-27.0%
STI
1829.71
2897.62
58.4%
2947.21
1.7%
Markets appeared to be volatile in 2010
but were actually not….when compared
to late 2008 and 2009
Sovereign debt crisis in Europe
among the PIGS (Portugal, Ireland,
Greece and Spain)….in April 2010
started this hiccup
but the PIGS are small…..in terms of
contribution to the Global economy
Problems in EU among the PIGs
small and still manageable….
GDP US$bn
% of world
World economy 2009
57937.5
EU
16447.3
28.4%
USA
14256.3
24.6%
Japan
5068.1
8.7%
China
4909.0
8.5%
Germany
3352.7
5.8%
France
2675.9
4.6%
Spain
1464.0
2.5%
Portugal
227.9
0.4%
Ireland
227.8
0.4%
Greece
330.8
0.6%
Hungary
129.4
0.2%
Singapore
177.1
0.3%
Euro seems to have found support at
US$1.10 to US$1.20 level ….weak
Euro will fuel recovery in Europe
Global economy recovering
albeit at a more modest rate
Global economy recovering nicely from
2009 led by developing economies

World Bank – Global economy contracted by 2.1% in
2009 but forecasted to grow by 3.3% in 2010 and 3.3%
in 2011

Developing economies grew by 7.1% in 2009 and
forecasted to grow 8.7% in 2010 and 7.8% in 2011

US economy shrank 2.4% in 2009, but is expected to
grow 3.3% in 2010 and 2.9% in 2011

China grew 8.7% in 2009 and forecasted to expand
9.5% and 8.5% in 2010 and 2011 respectively
US economy both manufacturing &
services sectors are expanding
ISM Manufacturing
ISM Non-Manufacturing
US unemployment near 10% but this is a
lagging indicator in any economic recovery
China’s GDP chugging along nicely:
10.3% for Q2-2010 - a very good number
Investment strategy for
rest of 2010 into 2011
I wanted to ask Paul the World Cup
Octopus but he has pulled a mussel
after being hired by Goldman Sachs for
US$4.5mn
More moderate OECD economic
recovery (NO DOUBLE DIP) means
that global interest rates are likely to
stay low until the middle of 2011
instead of Q3/Q4-2010
……equities which are “cheap” and
undervalued remain the best
investment class to be in
PER of the Dow at 12.7 times 2010
…low end of its historical range
PER of Shanghai now at 14.3 times
2010 at historical low since 2000
PER of Hang Seng Index now 13.4
times 2010–near historical low levels
PER of STI Index now only 13-14 times
2010 earnings (part 1)
PER of STI Index now only 13-14 times
FY2010 earnings– part 2
Summary




Uncertainty in stock markets will continue….it took six
months for markets to stabilise after the crisis started in
the US in Sept/Oct 2008….this would imply market
stability sometime in Q3-2010
Look at the VIX for guidance….it rose sharply to 44
when the Euro crisis started but is now comfortably
below the 30 level…..a sustained fall below 30 is a good
signal to start accumulating again
Global economy on the road to recovery although growth
rates in the US, EU and China are moderating.
Corporate earnings growth has been strong and stock
market PERs are at their historic lows for the Dow,
Shanghai, Singapore and to a lesser extent Hong Kong
My strategy…..






Easy money is over - stock selection is more important
now ! Until trading liquidity returns, you need to take a
six to nine month view for your stock investments
Look for undemanding PERs and attractive dividend
yields as you may need to wait until Q4-2010 for markets
to resume their uptrend.
I favor the technology sector (which is experiencing very
strong Q1 and Q2 2010 performance and with good
visibility until year end
Banks offer good exposure to the booming Singapore
economy
Construction stocks remain undervalued with many
companies trading below NTA and some even below
cash levels….worth a look for medium term investors
Property stocks could underperform in the near term as
the Government tries to control and moderate property
price inflation
Dow is stabilizing and recently cut back up
through its 50 and 200 day moving averages
STI Index has cut back up through its
50, 100 and 200 day moving averages
Shanghai Composite still has
downside risks of another 10-20%
Stock recommendations
Visit www.nracapital.com “Kevin’s Stock
Picks” …..we will soon to be releasing Stock
Picks (yield)
This is only for subscribers of our premium
research service but is available to investors
who use or have a stock trading account
with Lim and Tan Securities
Our Stock Picks have outperformed the STI
Index since we started the portfolio in mid 2008
Thank You