Have been busy doing some "national service" and seeing companies over the last week. Meanwhile the markets have rocketed away and hit the 2440 target of the STI which if you recall was the index target which I derived using the highests target prices for one third of the STI Index stocks of analysts.
I am still waiting for the correction but it seems that the underlying liquidity of investors who did not participate in this rally or who came out early in this rally (i am in this group) will keep shares and markets underpinned for now. The chart on the STI Index below shows that the next major resistance for the STI Index is 2800 while an ex-GIC fund manager told me he was looking at 2500 to 2600.
What are the fund managers saying now ?
I spoke to hedge fund and mutual fund managers in the last week. The hedge fund managers are not doing well with one making no gains for May and up about 8% for the year while another hedge fund manager was up 25% for the year. They have said that the huge amount of liquidity being pumped into the banking system to alleviate the credit crisis has flowed into the capital markets given that interest rates are low leading to heightened volatility. One fund hedge manager commented that his aum could sway by 30% from day to day. The mutual funds have done better with one fund manager commenting that he is up 60% for the year. He is looking to take some profit and lock in gains in June and also commented that his fund size is unchanged during crisis because of huge fund inflows but only because his fund has performed well in this last six months. Another fund is down 70% in terms of AUM.
Long Bond yields are higher....keep an eye on this as it could impact liquidity !!
US 10 Year Bond Yield
Hong Kong 10 Year Bond Yield
Singapore 10 Year Bond Yield
My current strategy in this market
The rally since March 2009 has moved shares from depressed/distressed levels to normal levels and now to levels that in some instances discount or are discounting a V shaped recovery. A correction is overdue and would be healthy for the market - if not we could as the hedge fund manager commented to me be looking at a very volatile "whip-saw" market.
The current strategy of some retail investors is to look at old trading laggards and buy into the momentum. If you are watching the market and the momentum, you can do this but you lock in level should now be 5-10% compared to 20-30% previously. Another investor told me you should adopt a buy and hold strategy because stocks will not fall....... I think this is too optimistic.
My strategy is to manage my risk reward by looking or trying to identify stocks which have limited downside risks. I have spent the last few days seeing companies, which in my opinion remain under-valued, have under-performed or have strong balance sheets. By adopting this approach, i am hoping to try and limit the downside risks of these investments. I have identified three stocks which I will be adding to my stock-pick list with an expectation that they should at least double on a 12-18 month view. My approach to these stocks would be to buy half my total position now and if the market corrects to average down this position.
I will put up the first stock pick later this morning.