Gloomy updates

Christmas is coming and merry christmas in advance! However, although I see most indexes recovering from their lows in recent weeks, the big question would be whether the momentum can be sustained? However, in light of the festive period, I'm afraid to say that investors would probably be selling of their stocks in get cash for presents.

Note that other than Christmas, there is still New Year and Chinese New Year to contend with. Hence, I believe that attentions would turn to elsewhere rather than on the stock market. Market volume would likely be weak until at least after February 2009.

I believe that probably after Feb 2009 then we would see signs of retail investors coming back slowly and this would stabilise the market.

Value Cost Averaging

Recently, I came across a news article talking about value cost averaging. Basically, value cost averaging is a improved version of dollar cost averaging which requires some active monitoring to managing of your investment account.

Value cost averaging takes into consideration the performance of your funds before investing the appropriate monthly cash sum into the funds while dollar cost averaging would just invest the fixed amount of monthly cash sum into the funds. An example would be that a DCA strategy to invest a monthly sum of $200 into a US equity fund, but for VCA, if the funds underperformed like 1% as compared to last month, you would have to put in $200 + the additional 1% loss that you incurred. However, if the fund grow by 1% as compared to the previous month, you just need to put in $200 - additional 1% gain. Hence, this strategy buys low and sells high, and adjust accordingly to the performance of the fund.

I had created a simple spreadsheet should you require help in starting up a new VCA investment plan for yourself.

Value Cost Averaging Plan

Hence, value cost averaging is in fact looking at the targetted fund amount rather than the fund cost. The consideration is to reach the targetted value of the fund rather than having a targetted investment sum that you wish to put into a fund.

Stagnant markets

Recently, all major markets had been sluggish and most had dropped significantly. Some examples are STI from 3300 to about 3000 (10% drop), Brazil from 74000 to 67000 and Hang Seng had dropped till 24000. I had previously sold my Brazil fund at about 73000 for a profit of 20% as it is one of the couple of funds that is still in the black and that I think it is edging too fast up.

For the past few days, most markets are flat without signs of improving. The Brazil index is showing quite a large fluctuations (1%-2%) and just yesterday, it had pushed up to 68000 mark. However, it is still too early to determine if the Brazil index would drop after a day of gains till 65000. As for the rest of the market, investors might wish to put in some capital but note that recovery might not take place that fast even though I think it is already bottoming out.

Commodity boom and inflation

Funds for commodity and energy should be booming now with rising raw material prices and oil prices. However, as rice prices reaches a high, this might cause concerns for the economy. For the past month, we had witnessed rises in commodities, energy funds and also in the Brazil sector.

I had decided to lower my holdings in Brazil as it nears the high mark of 70,000 to cash in on my profits. I noticed that perhaps the high raw material prices are not justified according to demand and supply factors especially for oil. OPEC had stated many times that supply of oil is adequate and with oil traders and energy funds buying into oil, this artifically inflates the price of oil. In addition, this also applies to commodities. However, it is unsure how this stagflation plays out as people will soon realise that the demand for goods and services would fall with a gloomy economy looming.

Hence, I suggest a cut on all energy and commodities holdings as it seems to be a tad too high for now. Although there's no doubt that oil prices would keep going up in future, this surging rise in prices might be too much to take. For Brazil funds, there might be cut back at the 69000-70000 level and it is thought that the index at this level might not hold for too long with US economy weakening. For other sectors, I suggest DCA for averaging down or start buying as it seems that markets are recovering slowly.

Prices are rising!

Sorry to burst your bubbles, I'm not referring to the rising unit trusts nor index. However, what I'm referring to may be of very good news for investors dealing in alternative or niche areas like materials, energy and gold.

Currently, oil, gold and raw materials had hit their peak and we are unlikely to see the end of it. For oil, it is extremely simple, there's a very limited supply but yet the demand for it is growing. Hence, unit trusts dealing with energy are growing even though markets are still sluggish.

Recently, there's news regarding the reviewing of prices of iron ore by Chinese firms. It is expected that prices of ore would probably rise 60-70%. Thus, unit trusts dealing with materials are showing an upward trend too.

For the last week, I also noticed an upward trend in Latin American economies and as these economies are mainly dealing with raw materials, I deduced that their rise are probably due to increase in the demand for raw materials. The Brazil fund is doing quite well as a matter of fact as compared to other regional unit trusts. It is also interesting to note that Thai unit trusts are showing an upward trend. However, the return of Mr Thaksin back to Thailand is akin to a pebble dropping into a still pond and the ripples might be great enough to cause a trend reversal. However, if all goes well, the Thai economy might be on the rise again! Do note the situation before investing!

That's all folks! Currently markets are consolidating and the situation seems to be under control for now even though it is still a tad too quiet. Thus, my outlook is still cautious though I might look at some energy funds for the long term.

After the festive period

Finally, the festive period for the Asia region is over! This entails reviving interests in trading but retail investors might still be staying on the sidelines. In the short term, it is expected that major stock indices would still be hovering at current levels at +- 20%. An example would be the STI which I predict would hover between 2800 to 3200 at least for the next 3 months.

Performance of my portfolio is not doing great owing to the global downturn and sentiments are still shaky although I had been doing monthly injections on funds like BRIC, Chinese and Korea as they are still projected to have reasonable growth this year. My strategy is still on doing dollar cost averaging for at least the next year.

Lastly, happy chinese new year to all the readers!

Emergency Fed Cut

Yesterday emergency Fed actions to cut the prime rate by 0.75% is indeed a little too late. It's equivalent to an electric shock to a non-beating heart, even though the heart is temporarily revived, who knows when it would stop again. And the US market probably needs to undergo structural changes akin to a heart operation in order for any recovery.

Currently, sentiments are so bad that regardless of what the fundamentals say, investors would probably not touch any stocks. Hence, even if good news like higher earnings were reported, Dow are still falling. If only drastic measures had been taken earlier, the downturn would not be so bad. Gauging the performance of DJ after the rate cuts had been announced, it does seem to slow the fall but there's still no rebound in sight yet. Thus, this electric shock did not even revive the heart and more shocks would have to be prescribed in order to revive the US market.

I would advise to stay out of everything as cash is king now.

A safer way to invest

A bad start to the year 2008 with uncertainties being certain. There are basically 3 things which I am concerned about. Firstly, recessionary pressure on the US economy which with the rest of the world having not decoupled from the US markets will cause growth in emerging markets to tamper down. Secondly, rising fuel prices. This means that production costs would increase resulting in a lower profit margins or in fact, this simply means that growth will be strifled. Thirdly, runaway inflation in growing economies which can be seen in China where food prices especially meat had risen much too fast due to affluence.

In actual fact, all these would slow growth in 2008 and the impact remains yet to be seen. However, I am still optimistic in the long run but neutral in the short term. My strategy is now changing due to unpredictability in the markets by adopting the DCA (Dollar Cost Averaging) approach. I had set up a regular savings plan to invest a few hundred monthly in a BRIC fund which I still have faith would be the growth engine of the world.

This approach enables me to average the up and down swings of the market that is too unpredictable but would enable me to reap a profit a few years down the road once market stablises and is on the upswing. In this way, I would be able to stay invested and yet adopt a passive approach. In the meantime, there would still be capital accumulation using savings from monthly salary for lump sum cash injections if required.

I believed currently this strategy is safer to spread out risks and yet taking a wait and see approach in the short term.