What are your expectations for the year 2009? Will it be a bullish or bearish year?

People I spoke to have little or no expectations at all. Some are cautious, and a fair number are leaning towards the bearish side.

So, what does 2009 hold for us? According to Wong Siu Jau, General Manager of iFAST Financial, he has high expectations for 2009. And these are his reasons:

• We have placed a lot of the bad news behind us in 2008: There was so much bad news that we became ‘immune’ to further bad news (e.g. Bernard Madoff $50 billion scam, thousands of layoffs in the US and everywhere else too, earnings of thousands of companies have been revised downwards, US car companies facing bankruptcies)

• Old problems remain but a lot of the pessimism has already been priced into the terrible performance of 2008

• Problems are now known and global interventions by central banks and governments are put in place to remedy the situation

• We are starting 2009 from an incredibly low base and things couldn’t get any much worse than what happened in 2008 (and if more bank related failures happen, it would hardly top the likes of Lehman Brothers, failures or near failures of AIG, Fannie Mae and Freddie Mac that required record government bailouts)

• Just about every type of investable asset class is cheap right now (except for US Treasuries & some triple-A rated government securities)

• Because everyone is so fearful, good companies and various stock markets are trading at rock bottom valuations

• Huge opportunities in investment grade and high yield bonds as well as equity funds (China & Singapore are showing huge bargains now; commodities are also looking attractive, Asian financials and European counterparts will bounce back)

• Despite the fact that markets were battered down very badly end October 2008, equity markets started to show positive returns from 27 October to 19 December 2008 ; volalitility has tapered off in the month of December

Last but not least, Siu Jau’s forecast is that a fair number of stock markets could rally 20% to 40% in the year 2009 alone. Markets are forward looking. 2008 has already passed. Analysts have also reported positive outlook for the global markets.

Here are 2 reports:

Business Times Executive Money
Published January 14, 2009

Nomura sees 25% rise in global stocks

(NEW YORK) Global stocks will gain 25 per cent this year as government measures revive the economy and investors move from cash into equities, according to Nomura Holdings Inc. ‘The scale of the planned stimulus ought to be large enough to short-circuit the feedback between asset markets and the real economy,’ global equity strategist Ian Scott wrote in a note to clients dated Jan 9.

Investors should be ‘overweight’ in financial stocks and so-called cyclical industries, which are more sensitive to economic swings, Mr Scott wrote. He recommended an ‘overweight’ position in emerging-market stocks, saying they will lead gains worldwide.

Earnings will decline 21 per cent globally this year and investors face ‘dilution’ as more capital raising takes place to shore up companies’ balance sheets, according to the note. The Standard & Poor’s 500 Index will rise to 1,110 by the end of the year, a gain of 24 per cent from the Jan 9 close, Mr Scott said.

The recovery from last year’s record drop for the MSCI World Index will be led by cyclical and financial sectors and clients should position themselves ‘underweight’ in so-called defensive industries, according to Nomura. The latter are companies that tend to be less sensitive to an economic decline. ‘If, as we suspect, the market recovery continues, then the underperformance of the defensives ought to be the main feature,’ Mr Scott wrote in the note.

SCI World slumped 42 per cent last year as US$1 trillion of losses at financial firms pushed the US, Europe and Japan into the first simultaneous recessions since World War II. Analysts estimate earnings in 2009 will slip 1.2 per cent in Europe’s Dow Jones Stoxx 600 Index, while profits in the S&P 500 may fall 2.1 percent, Bloomberg data show.

Citigroup Inc strategists forecast corporate earnings are about a quarter through an estimated 50 per cent tumble from their peak, according to its 2009 global outlook report dated Jan 7. Profits will drop sharply, reflecting the ‘collapse’ in demand from the fourth quarter of last year, they said.

In emerging markets, stocks will surge 35 per cent this year as the result of stimulus measures overshadows the slowdown in goods sold outside China, according to Nomura. ‘We have retained an upbeat outlook on China’s economic growth of 8 per cent during 2009 as monetary easing and fiscal pump priming ought to offset the effects of an export slowdown,’ Nomura’s chief Asia and emerging markets strategist Sean Darby wrote in a separate note dated Jan 3. China’s economy will expand 7.5 percent this year, the slowest pace in almost two decades, the World Bank predicted.

Jonathan Garner, head of Morgan Stanley’s emerging-markets strategy team, predicted the MSCI gauge will rally to 810, while Andrew Garthwaite, Credit Suisse Group AG’s global equity strategist, expects a rise to 630.

Clients should be ‘underweight’ in Japanese shares, while remaining ‘overweight’ in Asian equities, Nomura’s Mr Scott said. He maintained a ‘neutral’ stance on European stocks.
– Bloomberg

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Some light is finally shining from amongst the dark clouds!  Business Times reported positive news about the direction of Asian stocks.  Low valuations make attractive buys. But as always, do exercise caution with your investments.  We still want to have adequate diversification in our portfolios.

Business Times - 07 Jan 2009

Asian stocks may soar 43% this year
Valuations becoming more attractive, sentiment positive: DBS report

By GENEVIEVE CUA

ASIAN equity could be in for a substantial 43 per cent bounce over the next 12 months, thanks to attractive valuations, says DBS regional equity strategist Joanne Goh in a report.

Separately, State Street Global Markets’ Investor Confidence Index for December shows that while confidence among North American investors fell sharply from November, institutional investors in Asia bucked the trend. For the latter, confidence rose from 82.2 to 86.1.

European investors were slightly less pessimistic than North American investors, but their confidence still fell to 67.4 from 72.5 in November. The index measures investor confidence quantitatively by analyzing actual buying and selling patterns of institutional investors.

In a report, DBS Group Research’s Ms Goh says that the firm’s valuation model suggests a positive 12-month forward returns of close to 43 per cent for Asian stocks. This, along with oversold markets, should support Asia markets in the near term.

‘Asian markets could take a breather from a freefall as valuations become more attractive . . . The rally should be driven by positive sentiment arising from optimism that aggressive public spending and interest rate cuts would alleviate recession woes.’

Based on DBS’s analysis, markets were sold down to 2002 levels, which suggests forced selling, believed to be deleveraging by global financial institutions.

Still, uncertainty remains over the deteriorating labour markets and ‘uneven’ effects of the fiscal stimulus. Ms Goh says that markets could re-test the lows seen in October 2008 due to uncertainty related to the impact of deleveraging of the US financial sector. ‘. . . We recommend investors to exercise caution in this brief market rally upon the narrowing of valuation gaps,’ she says.

Fund flows may also not resume in force. ‘Asia markets will need to offer more attractive growth and valuations than the rest of the world in order to attract fund flows into the region.’

China and India, she says, have the the highest GDP growth forecasts for 2009 among 46 countries and rank ahead of the US in earnings growth. ‘Asia valuations, however cheap by its own historical standards and cheaper than the US, are still more expensive than the 8.6 times median of 46 countries.’

She has an overweight recommendation for Singapore, China and Hong Kong on a short-term rebound as well as the flexibility of the countries to handle the economic crisis with policy responses. She has an underweight call on Malaysia, India, Indonesia, Taiwan and Thailand.

Meanwhile, Citi Investment Research says that US$580 million of redemptions from Asian funds in the last two weeks of 2008 took total net outflows for the year to US$19.6 billion, citing EPFR Global data. The outflows suggest that one-fifth of the new money invested in Asian funds in 2006 was redeemed.

Of the US$580 million of outflows, 46 per cent was due to China fund redemptions. Outflows also resumed out of global emerging market and international equity funds. Total net redemptions from the latter two categories came to US$1.1 billion in the last week of December, compared to net inflows of US$4.1 billion in the previous week.

EPFR has reported that cash holdings of Asian funds were lowered by 73 basis points on a month-on-month basis to 3.8 per cent in November. Citi believes that this is ‘far too low’ compared to 6 per cent in the 2001 downturn. Asian funds remain overweight Singapore and Hong Kong/China.

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Yes, there are investment opportunities in 2009 and adequate diversification will be key to the growth and success of your investment portfolio.

2009 will be a year of surprises but they will be positive one!

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