With the last week of January upon us, as well as the Chinese New Year, on behalf of the entire team at Austen Morris Associates, we would like to wish our readers both in China and abroad happy festivities. Gong Xi Fa Cai and Xin Nian Kuai Le for the Year of the Horse! In addition, please note that our Shanghai Head Offices will be observing the Chinese New Year and our offices will be closed from Thursday 30th January 2014 through to Sunday 9th February 2014 with normal business hours resuming from Monday 10th February 2014. South African offices remain operational throughout this period.
Back to Money Matters. There are a few key items in the lineup for this week so let’s get to it! There was a late dip in the markets last week that could set up some eventful actions for the week ahead. For anyone who missed last week, it started with some slight gains after the IMF raised its global outlook on the growth of the economy, however, with some weaker than expected data, and specifically that of China’s weaker manufacturing numbers, this resulted in some concern within markets on Thursday and world indices followed suit moving down through Friday. The Hong Kong Hang Seng and UK FTSE both ended the week about -2.3% lower, while the US S&P dropped about -2.9% with two thirds of that drop coming in from Friday alone. It’s been over six months since the global markets slipped this much, but it’s too early to call a trend given that there are scheduled events, including some taking place this week, that could see a shift of balance one way or the other and are worthy of a closer look.
Noteworthy events that contributed to market fluctuations last week included that of the emerging markets with ongoing political unrest in Thailand, Ukraine, and Turkey, as well as Argentina’s Peso which devalued over 11% in a day. But it was China’s manufacturing index which slipped about 1% that was driving a large majority of concern in the markets. Our long time readers will know that China’s numbers have been increasing since July 2013 and given the Christmas and Chinese New Year holidays within weeks of one another, having a 1% slip on the month may not seem so significant. However, a majority of investors may not see it this way and there are plenty of opinions out there supporting these varying views. There will always be both pros and cons (in regards to investing) in the global economy and this perhaps amplifies the emphasis put on corporate earnings reports (to be released this week), as well as the US FED meeting on Tuesday/Wednesday.
This week’s schedule of earnings to be released can be expected from several companies including Caterpillar, Google, Pfizer, Siemens and Apple. It will be interesting to see how results are treated once released as these will help gain further insight into some of the various sectors. Also of interest to many will be the US FED meeting taking place later this week in which it was expected we’d see further scale backs in their stimulus as planned, however, with the recent pullback in the markets there are rumors as to whether the FED would consider further delaying such a reduction. From our point-of-view, it’s difficult to see the FED changing their decision after hinting at it last week, and given last week only saw a 3% drop, it’s hard to imagine them showing a timorous side to the public on the drop, but by Wednesday we’ll soon know how this plays out. What we likely can expect moving in to this week though is a long talk by the FED to try and influence the market and remind everyone that they do retain the power in which they can tamper with, and delay stimulus at further meetings should they feel so inclined.
Either way, the FED’s ability to alter or delay stimulus adjustments any time gives them several more opportunities to get involved in the markets throughout the year. Keeping that in mind, the focus should be on corporate earnings and the data side of things (instead of that of political aspects) as expected earnings have been quite mixed thus far but with a vast line up of reports due out, perhaps we’ll see some further indications of what to expect in the markets. Lastly, given all the various factors to account for in the next few weeks, we wouldn’t advise on any hasty (investment) decisions at this time. Instead, in light of indications expected over the near future, it will be important to stick to the fundamentals and continue to hold both a mix of equities, commodities, and bonds, as well as having both developed and emerging market exposure, and riding through any volatility at this time.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Austen Morris Associates Wealth Management & Investment Team
Co-Head of Portfolio Management