Fed Meeting on 31 Oct

This week can be considered the gambling week with the Fed meeting on the 31 Oct 2007. Many people might invest on Wednesday should they think that the Fed might lower interest rate again on 31 Oct, conversely, many people might also sell their investments should they feel that the Fed would not take any actions.

However, this is what I feel might happen. The Fed would most likely not lower their interest rates and this would enable US$ to rise. Although this might be contrary to expectations that US interest rate would be lowered, the Fed chairman would reassure the public that they would monitor the situation and take immediate action to lower interest rate if neccessary like previously. Thus, stock index might not neccessarily drop with such encouraging comments and even if it drops, the magnitude of the drop might not be that great as Fed has indicated that they are going to cut rate in future rather than now.

I would still remain with my stance of adopting a wait and see attitude as I'm advocating the viewpoint of an investor rather than being a speculator to time market movements. Note that after the Fed meeting, sentiments and market trend would be clearer for the investors to analyse where to put their money in.

Recently, the Chinese funds are currently stagnating with regards to their performance 3 months ago. For these past few weeks, the best performer should be the korean funds. The korean market (Usually the KOSPI) is tracking the Japanese market (NIKKEI) and recently with major Japanese firms releasing good financial results, this would have positive impact on the Korean market as they basically follow the trend of the Japanese market. The Latin America economies are tracking the US market which is currently mired in uncertainty, so their performance are also not that great for these past few weeks.

Markets Update

Seems like global markets are weak for this week and last week. It would probably be weak till the situation becomes clearer after the Fed meeting on 31 Oct. There's a high possibility that Fed would not cut rate so fast prompting a further drop in market indices in the world. Currently, I expect most investors to cut their holdings or adopt a wait and see approach.

For those planning to buy in funds or increase their holdings, I would suggest to hold your horses and wait for the uncertainty to clear up first as fund prices are different from stocks in that they appreciate or depreciate gradually compared to stock prices, thus, even if you would not get the price at rock bottom price, you will still manage to ride the upward wave up.

Funds Market Analysis (Oct 15 - Oct 19)

Some market updates here.

On the horizon, I expect a short term correction during these 2 weeks for the Chinese markets or at least in the near future. HSI had been breaking records every so often and I guess some profit taking is bound to take place. In addition, there is pressure from rising oil prices that would cause profits to suffer. Thirdly, although the Chinese government is optimistic about economic growth in general, they had to implement some highly unpopular policies to cool down their overheated economy to prevent prices from spiralling out of control.

Technology funds are worth looking at as growth and earnings are strong. In addition, as most people are still traumatised by the tech bubble burst, this sector is often neglected. Currently, one of the drivers of the US economy is the technology stocks after being hit by the sub-prime crisis. Overall, the US economy still looks ok but their stock market is still badly shaken. As discussed previously, many analysts are still predicting further Fed cuts before the end of the year if they didn't already done so on 31 Oct 2007. I however look unfavourably on further rate cuts as a sign of weakness of the US market which requires intervention to bail out speculators that place their bet on the wrong horse. Thus, I still view US as a region where I would not go into.

With weakness of the US market, other regions like Brazil and Mexico that are of close proximity to the US market are also hit. The performance of Dow and Nasdaq seems to impact how the Brazillian and Mexican stock market perform, but growth for Latin American markets are still favourable in the long term. For short term investors that has an investment horizon of less than 3 months, probably you should take a look at Asian economies that are offering better returns.

I would look more closely at Korea for this quarter as first of all, the growth of the economy is going to be better than expected. Secondly, I'm optimistic that Korea would most likely conclude the FTA with Europe by end of the year even though talks are still ongoing and the representatives are saying that it might not be concluded by end 2007. For funds dealing in Korea, market volatility is not as great compared to China, India and Latin America but still returns a modest growth of 20% a year. Korean funds are expected to do generally well till first quarter of 2008.

However in general, the global economy still looks good from now till 1st quarter of 2008 with minor dips along the way.