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Global Market Outlook 2017
Economy, Stocks, Bonds, Properties, USD, Gold/Silver/Oil
By: Dr Tee Tong Yan
Investing Educator
Visit Blog for Market Updates: www.ein55.com
Email: [email protected]
US
HK
SG
EU
CN
1
Table of Contents 1. Mass Market Sentiment Survey .................................................... 2
2. Review of Global Stock Markets .................................................... 3
3. US Market Outlook ........................................................................ 7
3.1 US President & Government .................................................... 7
3.2 Effect of QE ............................................................................... 7
3.3 US Interest Rate Hike ................................................................ 8
3.4 US Job Market .......................................................................... 9
3.5 US Property Market ................................................................ 10
3.6 US Bond Market...................................................................... 11
3.7 US Dollar vs Commodity (Gold / Silver / Crude Oil) ................ 12
4. Regional Market Outlook ............................................................ 14
4.1 Europe Market ....................................................................... 14
4.2 China Market ......................................................................... 15
4.3 Hong Kong Market ................................................................. 16
5. Singapore Market Outlook .......................................................... 16
5.1 Singapore Stock Market .......................................................... 16
5.2 Singapore Property Market ................................................... 18
6. Conclusions and Recommendations ........................................... 18
Appendix ........................................................................................... 19
Free Investment Courses by Dr Tee.................................................. 20
2
1. Mass Market Sentiment Survey
Before sharing any personal views on current investment
markets, I often like to begin with a unique “Ein55 mass market
sentiment survey” for my investing workshop audience or readers:
“What do you think of the market trend for the next 1 year from
now?”
A = Bear Market (STI < 10%)
B = Flat Market (STI within 10%)
C = Bull Market (STI > 10%)
Please make your choice before continue reading further. This is
an important move because you will be part of “Ein55 Indicator”
on future market trend.
The participants with diversified background and experience
representing the mass market will cast their votes. Here is the
latest statistics based on recent survey: Bear Market (16%), Flat
Market (83%), Bull Market (1%). Please compare your choice
with this overall distribution on market outlook.
The current majority market view (83% flat market) aligns
well with the current market trend in Singapore as Straits Times
Index (STI) has been trading sideways most of the time within
3000 points 10% (2700 - 3300 points) over the past 7 years. This unique Ein55 Personal Indicator is making use of the
psychological weaknesses in traders/investors who usually buy
high (when greedy) and sell low (when fearful). Therefore, the
recommendation of investing calls of buy / sell / hold, is against
the mainstream view:
Buy: when bear market view > 75%
Sell: when bull market view > 75%
Hold: when flat market view > 25% (current market)
3
This Ein55 Personal Indicator has monitored the investing market
regularly since Nov 2011 (see Figure 1), successfully predicting
a golden entry point to stock market after the US credit crisis in
late 2011 with >75% bearish views. This unique investing
methodology is consistent with the famous saying by Warren
Buffett: “Be greedy when others are fearful. Be fearful when
others are greedy”, but in a measurable form of investors
emotions.
Figure 1. Personal Indicator: Mass Market Sentiment Survey
2. Review of Global Stock Markets
Where are we? In year 2016, global stock markets have been
gradually recovering from regional financial events such as oil &
gas crisis, BRExit crisis, global economy slowdown (eg. Hong
Kong, China, Singapore, etc), continuation of QE (Quantitative
Easing, i.e. printing money) with negative interest rates in
Europe/Japan, US interest rate hike with record high of US stock
market (S&P500) from time to time.
4
The fearful emotion of investors can be reflected by Volatility
Index (VIX, see Figure 2), higher peak values usually occur when
there are some potential financial crises with high volatility. The
trend of VIX has been declining since the subprime crisis in 2009,
stabilizing within 10-20 points (historical bull markets with low
VIX) most of the time, but has been in a rising trend over the past
2 years. This shows that the global investors are more sentimental
over various political or financial events, paving the way for a
volatile later phase of bull market. Investors may use VIX > 20
points (consistently above this level, eg. using moving average of
50 or 200 days) as the first alert to exit from the market.
Figure 2. Volatility Index as fear factor
In a bull market, every financial “crisis” provides an excellent
opportunity for smart investors to enter the market, buy at lower
price during market correction with much higher upside than
downside. In early year 2016, global stock market has been
recovering from 10%-20% correction. This is the secret of
success for value investor and market-cycle investor. The global
stock markets of major economy (#1: US, #2: China, #3: Japan,
#4: Germany) have reached 75% Optimism in year 2015, any of
these regional crises could trigger the next global financial crisis.
5
When Optimism level is getting higher (towards 100%), the risk
will be higher with more severe global financial crisis in future.
In this Market Outlook 2017 report, Ein55 FTP Analysis
(Fundamental/Technical/Personal Analysis) with Optimism
Strategy is applied to evaluate the upside/downside of the markets
with identification of undervalued investment sectors and regions.
The goal is to find a good business, buying below 25% Optimism,
selling above 75% Optimism (see sample chart in Figure 3).
A comprehensive market analysis should always start from
macro level (world, region/country, sector), gradually zoom into
micro level for individual investments (eg. individual stocks /
bonds / properties / commodities). Based on World Stock Index
(23 developed stock markets) shown in Figure 3, the global stock
markets remain bullish, exceeding the last market cycle peak in
year 2007, the Ein55 Optimism level is moderate high (61%),
recovering gradually from the correction in late year 2015.
Figure 3. Ein55 Optimism of global stock markets (1995 – 2016)
61% Optimism
6
In the last 1 year, comparing the major stock market indices
(see Figure 4) in US, Europe and Asia, we can observe that the
global stock markets have been recovering from the last
correction due to fear of US interest rate hike and global economy
slowdown.
As predicted in my last year Market Outlook 2016 report, the
correction was “a blessing in disguise, especially for mid-term
traders as there are more undervalued stocks with 20-50% lower
price, e.g. after the Oil & Gas crisis.” Indeed, this prediction is
proven a year later with recovery of global stocks including oil &
gas sector. A good trader and investor learn to take calculated
risks, not after the market confirmation which may be too late for
entry. In fact, a one could take profit with recovery of stock prices,
so that one could buy low again in the next market correction.
In the subsequent sections, these 4 regional stock markets and
Singapore market will be investigated with deeper analysis on
selected topics of interests.
Figure 4. Recovery of regional stock markets
7
3. US Market Outlook
US is the world No. 1 economy, contributing to about 40% of
world stock index, therefore its market outlook should be the top
concern. US stock market was at new historical high in Aug 2016.
Since the end of subprime crisis in year 2009, US stock market
performed much better than its actual economy, mainly due to
several political economy policies (eg. QE1-3 and near-zero
interest rate). As predicted in my last year Market Outlook 2016
report, “the bullish stock market may not end easily due to
support of growing US economy.” The new US President is likely
to implement more pro-economy policies until the stock market
bubble is burst one day due to uncontrollable market greediness.
3.1 US President & Government
Political economy is a strong consideration, especially for the
controversial new US President, Donald Trump. Due to
uncertainty in political moves, it could be a bumpy year for stock
market in 2017. The global major economies have to establish a
new relationship and power balance with US for the next few
years. When US stock market is at high optimism, any negative
surprised move could become the next black swan event. In
addition, the Republican Party has also taken control of the
Congress (both the Senate & the House), future US government
can be more decisive in major political and economic moves.
The debt level of US government is getting higher each year
which will be a time bomb in far future. Whole world still
believes in the No 1 economy and US dollar, therefore the high
debt is still sustainable, despite massive QE in the past. Europe
has paid a significant price in the last few rounds of debt crisis.
If the same lack of confidence happen in US one day, it will be a
disaster.
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3.2 Effect of QE
As predicted in my earlier reports, US stock market has
adjusted well without QE3. The Federal Reserve needs to play
the mind game with the market, stopping the massive stimulus
plan at the right time with the help of stronger US economy.
However, larger scale of QE is needed for future global financial
crisis solution. In year 2017, similar episode will be replayed,
except the actor of QE is replaced by US interest rate hike.
3.3 US Interest Rate Hike
Following the natural market cycle, the Fed and global bank
interest rates should be increased before reaching the peak of
economy or bull market. Then, during the next phase of bearish
market, the policy makers will have the bullets to cut the interest
rates to stimulate their economy again, like what they did in the
last global financial crisis in 2008-2009.
Similar to inflation (due to higher liquidity in the market),
moderate and gradual increase in interest rate is a good problem
to have during the bull market. The negative impact of higher
borrowing cost to the corporates can be compensated by higher
earning at the same time.
Historical data of the last 2 market cycles (see Figure 5) show
that the interest rate hikes (years 1994 and 2004 respectively)
actually did not end the bullish stock markets, contrary to some
public opinions based on intuitive. Instead, earlier stock market
has a few more years to grow after US interest rate hike before
reaching its peak. The one million dollar question now is whether
the history will repeat itself in the current market cycle when the
Fed increases the near-zero interest rate, is the current US stock
market considered overheated?
9
If one believes in market cycling, mega macroeconomy trend
shall repeat itself sooner or later. The fact that the interest rate
has been kept flat (near zero) for so many years, itself is a bullish
sign. The US interest rate is expected to increase by about 0.5-
1%/year from near-zero position, up to around 3%+ in about a
few years, approaching peak of economy. The rate of US interest
rate increase (either 0.5-1%/year or higher) and Optimism of
global stock market will affect the duration of bull run. A gradual
and predictable growth of interest rate and global stock market
index is preferred to prolong the bullish economy.
Figure 5. Correlation of interest rate and stock index
3.4 US Job Market
The Fed must have a few new pillars when the walking sticks
of QE and low interest rate are discarded. US job market and
property market will be excellent sources of new funds, ensuring
the liquidity in the investment market is not affected.
US is predominantly a consumer-driven market with consumer
spending contributing to about 70% of its economy. US personal
2017
10
saving rate is about 3-5%, implying they will spend or invest
majority of their earning. The funds and spending from US
consumers will help to sustain the economy and stock market.
Therefore, US unemployment rate is an important economic
indicator, mega trend to a lower value is preferred. During the
worst economy year of 2009, it recorded a very high
unemployment rate of 10%. In the last peak of economy in 2007,
it has only 4.5% unemployment rate (see Figure 6).
Figure 6. History of US unemployment rates
Historically, from the peak of US unemployment rate during
the worst time of global financial crisis, the job market will then
improve with an average of 0.5-1%/year reduction in
unemployment rate. This trend has been followed consistently in
the current market cycle as the unemployment rate was reduced
from 10% to 5.0% (Oct 2015) in about 7 years, average of
0.7%/year but remains relatively unchanged at 4.9% (Oct 2016),
2000
2003
2007
2009
1992
1982
1975
-1%/yr
Bull Market
US Unemployment Rate Bear Market
2015
2016
2017
11
an early sign of saturation in economy. The first critical
milestone of 5.0% unemployment rate is reached, projected
accurately in my earlier Market Outlook 2015 report, which has
justified the Fed to activate the interest rate hike as predicted. The
next 2 critical checkpoints are 4.5% and 4.0% unemployment
rates, if reached one day, US and global stock markets may
achieve new historical high with very high Optimism level, a
significant hidden risk.
3.5 US Property Market
The last subprime crisis was triggered by the US property
bubble which was formed during super bull run in 1991-2007, far
exceeding the 100% Optimism level of property market. The
burst of this US property bubble coincided with the peak of global
stock markets, resulting in a serious global financial crisis.
Despite the introduction of QE1-3 and near-zero Fed interest rate
(results in low housing mortgage rate), the US property market,
based on S&P Case-Shiller Housing Price Index, only starts to
recover from early 2012 till now, in a mega upward trend.
Currently the average housing price is at moderate high Optimism,
only 10% below the last property peak price (before subprime
crisis), risk is getting higher when approaching economy peak.
Compared to stock market, the property market in US has
much higher upside, there will be liquidity connecting these 2
investment markets, minimizing the difference in % Optimism.
This implies the future stock market could be partially supported
by property market, eg. one could sell the house, taking the profit,
reinvest in stock market for quicker return, or vice versa.
When US property market has achieved high optimism one
day, a black swan event (USD/interest rate, stock, commodity,
bond) could be the last straw to break the camel’s back again.
12
3.6 US Bond Market
Due to the excessive asset purchase by US, Europe and Japan
through QE, the US government (treasury) bond price has gone
up to a historical high, while the bond yield which is always
opposite in trend, recording as low as 1.5% for 10-year bond in
Apr 2016, the reversal depends on US interest rate hike and US
economy strength. Projected growth rate of US 10-year bond
yield is about 0.5-1%/year, aligning with the expected annual
growth rate of US interest rate, until critical limit of 3.0% is
reached. Current bond market at peak price has high risk with
low return (low yield), supported mainly by global QE.
3.7 US Dollar vs Commodity (Gold / Silver / Oil)
US Dollar (USD) and commodity market (eg. gold, silver, oil,
etc) are usually opposite in trends, discussed together here.
US Dollar
USD index is a measurement of average US Dollar
performance against other major foreign currencies. Traditionally,
USD index is the highest during global financial crisis as it is the
safe harbor for investors. After QE3 tapering with US interest rate
hike, USD index continues to appreciate, as projected in Market
Outlook 2016 report. After US interest rate hike is started, USD
is expected to appreciate further, but performance varies,
depending on individual foreign currency. For USD/SGD pair of
forex, the upper limit is around 1.5. Under a normal market cycle,
US Dollar Index will decline during bullish market due to higher
risk tolerance level of global investors to consider non-US
currencies. Therefore, the recovery of US dollar index after QE3
tapering and US interest rate hike may not be for long term.
13
Commodity Market
Global commodity market (Commodity Price Index) usually
has positive correlation to the trend of inflation (Consumer Price
Index), higher during the bullish economy, lower during the
bearish economy, due to the relative demand and supply.
Commodity market has far exceeded the 100% Optimism in the
last economy peak of 2007 but the global financial crisis in 2008-
2009 has seriously corrected the prices, trading at very low
Optimism in the last 1 year based on the trend of last 2 decades,
currently at recovery phase, bullish in short term.
Commodity market is only suitable for short term trading or
long term investing because its trend for the mid-term is still
bearish due to slowdown in global economy, resulting in weaker
demand.
The commodity market correction has created opportunity for
investing in stocks. The prices of commodity stocks are mostly
at very low optimism. However, this opportunity is not aligned
with the global stock markets at moderate high optimism,
therefore the commodity stocks may need longer time for
recovery. Strengthening of USD will add further pressure to the
commodity market.
Gold / Silver
Within the commodity market, the precious metal, gold, has
been a favorite investment of choice. However, in the past few
years, gold has been used as a tool for speculation, not really a
hedge against inflation (which has been at low level for US) as its
last historical peak in year 1980. The price and trend of silver
follows gold very closely.
14
In late 2011, supported by QE2, both gold and silver reached
another historical high over a 30-year market cycle. Since gold
and silver have exceeded 75% Optimism of their historical prices,
the correction in the last 4 years have been substantial, gold price
is nearly halved while silver price drops to about 1/3 of its peak
price.
Although prices of gold and silver are recovering from
intermediate low, current market is suitable for short term trading,
not for long term investing. The super-long market cycle (30
years) of gold and silver forbid any long-term position, especially
for value investors, unless the price drops below 25% Optimism
for gold. They are tools for speculation or trading, not for
investing at the moment.
Crude Oil
Price of crude oil has been following the general downtrend
trend of commodity market mentioned earlier, in opposite
direction of US Dollar Index.
Brent crude oil price per barrel has been corrected from
US$115 (over 75% Optimism) to US$27 (nearly 0% Optimism),
recovering and stabilizing around US$50 (below 25% Optimism)
in the past few months after OPEC and non-OPEC oil producer
countries start to discuss on control of oil supply. This could be
light at the end of tunnel for oil & gas crisis stocks.
Similar to other commodities, current oil & gas stocks are only
suitable for short term trading or long term investing due to slow
recovery of global commodity and strengthening of USD at the
same time. For crisis investing, only strong business should be
considered as they are more likely to survive through the winter
time and become stronger one day.
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4. Regional Market Outlook
4.1 Europe Market
Europe market experienced Euro Debt Crisis during 2010-
2011, mainly due to the high national debt with poor
fundamentals of these 5 countries from EU: PIIGS (Portugal,
Italy, Ireland, Greece and Spain), resulting in potential sovereign
defaults. In 2011, this Euro crisis was coupled with US credit
crisis, bringing the global market to a new mid-term low with
correction around 20-25%.
In late 2011, I was one of the few bullish market viewers,
despite majority of the market views were bearish (see earlier
Section 1 on Mass Market Sentiment). Main consideration is that
the global market was at only 50% Optimism, the downside was
limited. Therefore, I determined that the Euro Debt Crisis and
US Credit Crisis were only regional crises, unlikely to evolve into
a global financial crisis. This is similar to the Asian Financial
Crisis in 1997, only limited to a region, but not globally.
European stock market reached an intermediate peak in year
2015 (over 75% Optimism for Germany DAX Index), having a
major correction in Year 2016, recovering gradually for mid-term.
The BRExit crisis of UK in Jun 2016 was only a minor impact on
European stock market as the optimism level was moderate
(nearly 50% Optimism), therefore the fearfulness is limited.
Current European stock market is suitable for short to mid-term
trading, not for long term investing.
4.2 China Market
In the late 2008 during the US subprime crisis, China
government was the first in the world to start its QE with 4-trillion
RMB fund injected to the domestic market. However, the side
16
effect of high inflation and property bubbles forced the China
government to tighten the liquidity in the market through its
central bank, as well as implementing various cooling measures
for the property market.
World No 2 economy, China’s stock market only had 1 year of
bull market after the China QE, then experienced a bearish market
over the last 5 years due to the restructuring of economy.
Fundamentals of China economy has been good with bullish
global economy, but the political economy is the invisible hand
limiting its growth.
As pointed in earlier Market Outlook 2014 report, China SSEC
Stock Index at 2000 points (crossing many times in the past few
years) was near to 25% Optimism, providing a rare opportunity
for new investors. In 2015, China stock market has experienced
a speculative rally, Optimism is surged to the critical 75%
Optimism, 150% gain in China SSEC Stock Index from 2000
points to 5000 points. As a result, this triggers a major correction,
now the Optimism is below 40%. Current China stock market is
suitable for short to mid-term trading, not for long term investing.
4.3 Hong Kong Market
Hong Kong market is like twin to Singapore market in the past
few decades, for both stock market and property market, simply
because both regional markets are highly internationalized,
susceptible to global economy cycles. The stock market in Hong
Kong is more volatile historically, influenced predominantly by
both China and US markets.
After the major correction in Q3/2015, there are many
undervalued stocks in Hong Kong, Optimism was <25% in Year
2016, recovering recently. Current Hong Kong stock market is
suitable for trading and also investing for selected good stocks.
17
5. Singapore Market Outlook
5.1 Singapore Stock Market
Singapore stock market has been “sleeping” over the past few
years, an investor who invested in Straits Times Index (STI) ETF
(representing 30 blue chips) in the late 2010, will virtually has no
capital gain after holding for 6 years (see Figure 7).
STI has been stagnant due to lack of local stimulus plans and
slowing down in Singapore economy. In a sideways market, STI
is more suitable for mid-term trading, not for long-term investing,
despite the Optimism has been around 50% most of the time. In
a flat market with sideway trend, stock index or prices are usually
traded in an oscillating manner within a channel. Mid-term
trading with smaller profit and loss targets, may fit better for the
current stock market in Singapore.
After reaching the last intermediate peak of 3500 points in year
2015, STI has dropped nearly 1000 points, recovering since early
year 2016, the Stochastic is getting higher above 20%, uptrend
for short term. Current Singapore stock market is more suitable
for short to mid-term trading, only selected undervalue stocks
with low optimism may be considered for investing.
Singapore is a highly globalized economy with many
international links. This is the reason why Singapore market
usually follows the leads of other major markets, eg. opening by
overnight US market, late morning by Asia, late afternoon by
Europe. Another way to estimate the future of Singapore market
is through the outlook of global or US markets. With global stock
market at high position, Singapore stock market will have limited
upside, unless there is a drastic change in national financial
policies or strengthening of Singapore economy. There may be
still a last rally in future but this is only suitable for traders, not
for investors.
19
5.2 Singapore Property Market
Singapore property market has been bearish after the 7 rounds
of cooling measures by government since 2011, but price
correction in each quarter is limited, fulfilling the ultimate goal
of government to stabilize the housing price, making it affordable
to new buyers and protecting its value (price) from becoming
negative asset for house owners during crisis time in future. As a
result, the Singapore property market is currently at moderate
Optimism of 50%, a fair value but not suitable for investing yet.
The return from Singapore property market can only be
maximized with leverage and it has been limited due to various
cooling measures. For mid-term, trading with property related
stocks (eg. REITS) could be safer and having higher upside than
buying actual properties which require 4 years of commitment to
minimize the taxes. However, the rising interest rate in Singapore
will add pressure to both Singapore property market and related
property stocks.
6. Conclusions and Recommendations
The uncertain global investment markets could be monitored
effectively with Optimism Strategies developed by Dr Tee
(methods will be taught by Dr Tee in free public workshops). The
current global stock markets at moderate high Optimism is only
suitable for traders after each market correction, not for long term
investors, who will need to wait patiently for the next global
financial crisis following the Optimism level.
The importance of macroeconomy analysis has to be
emphasized when analyzing the stock markets potential. The
master plan of economy given in Appendix will be an useful
guide to investors to understand the interactions among different
investment markets and economy indicators.
20
Acknowledgements
The author is grateful to educational partners: Wealth Directions,
Cyberquote, CIMB Securities, Lim & Tan Securities, Phillip Securities, City Index, UOB Kay Hian, CMC Markets, Shareinvestor.com, SIAS,
Share Investment Magazine, Ein55 graduate and mentors, blog readers and workshop audience for supporting the Ein55 investing education programs to guide the general public towards the right path of investment.
Disclaimer
All financial instruments including equity and derivative investment involve risk. Transacting in financial instruments is inherently risky and uncertain. Past results are
not indicative of future perform. No system or methodology has ever been developed
that can guarantee profits or ensure freedom from losses. The author, SMARTS
Enterprise LLP, Ein55 Pte Ltd and partners shall not be liable to the reader or participant for any damages, claims, expenses or losses of any kind (whether direct or indirect)
suffered by the reader or participant arising from or in connection with the information
obtained from the publications, newsletters, blog, forum, courses or trainers.
Appendix. Ein55 Style #9: Economy Master Plan
Job Market
(% Unemployment)
Consumer Market
(CPI / Inflation)
Purchasing
Order (PMI)
QE
($)
Bond Market
(% Yield)Bank Loan
(% Interest)
Commodity Mkt
(Comm. Index)
USD / Forex
(Dollar Index)Gold / Silver /
Oil ($)
Local Economy
(GDP %)Local Gov
Policies
Global Economy
(GDP %)
WE
Property
Mkt (HPI)Shipping
(BDI)
Market
News
Business
(EPS)
Stock Mkt
(Index / $)
21
Please visit www.ein55.com to register for
free investment courses (worth $500) by Dr Tee
on various topics with Optimism Strategies.
Author / Speaker: Dr Tee Tong Yan
Dr Tee holds a PhD specialized in computational
simulation. He possesses 19 years of
trading/investing experience with in-depth
knowledge in stocks and various major
investment markets. He was a corporate Vice
President, now the founder of a consulting firm.
He has achieved financial freedom, spending
most of his free time in life mission to educate the
public towards the right path of investing.
He is the founder of www.ein55.com investing blog with applications of
Ein55 Styles of investing, sharing his experience extensively with over
800 investment articles, conducting over 200 trading/investing
seminars using FA, TA and PA methods with unique Ein55 Optimism
Strategy. He is a well sought after speaker in major trading firms and
various investing seminars.
Stock Market Outlook 2017 by Dr Tee
2017
SG US
HK CN