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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Cogito Ergo Sum who wrote (72123)	3/17/2011 9:15:44 PM
From: TobagoJack	Read Replies (1) \| Respond to of 219714

just in in-tray, per greed n fear · GREED & fear maintains the view that the stock market fallout from the natural disaster constitutes a major buying opportunity in Japanese equities. The overwhelming conclusion remains how little damage has been sustained given the sheer scale of both the earthquake and the resulting tsunami. From a valuation perspective, the Topix is now trading below book value again. Global investors should use this opportunity to overweight Japan if they have not already done so. · GREED & fear’s bull case rests on two foundations. The first point is the extent to which Japanese corporates have proven they can live with a stronger yen. It is not necessary any more to believe in a weakening yen to assume an outperforming Japanese market. Second, there are clear indications that Japan has commenced a new property upturn which increases the collateral value of the banking system. · The positive point for Japan is that there is at least a sporting chance that the re-construction effort not only boosts growth with a lag but also serves to counter the long-entrenched deflationary mindset. · GREED & fear is going to depart from normal practice and initiate a leveraged element to the long-only Japanese portfolio funded by borrowing yen to avoid a currency mismatch. This “extra” 15% will be comprised by adding 5ppts to the existing position in Mitsubishi Estate and adding a 10ppt investment in the insurance sector, with the chosen stocks being property and casualty insurer Tokio Marine and life insurer Dai-ichi Life. · The Chinese authorities finally seem to be getting some control over credit growth. China M2 growth has now reached the government’s targeted growth level of 16%YoY. Indeed the latest M2 data suggests that monetary policy is already very tight, with the increase in the first two months accounting for only 8.8% of the annual targeted increase. Deposit growth is also slow compared with last year, but it does not yet represent the sort of collapse that would suggest surging inflation expectations. · GREED & fear’s view is that the A share market is in the process of building a solid base, though to declare victory formally in its tightening campaign the government will probably want to see headline CPI inflation slow for two or three months in succession. It is also the case that A shares looks cheap relative to history as do A share bank stocks. · In the policy influenced SOE part of the Chinese stock market, GREED & fear would favour stocks geared into the housing construction boom which will be the consequence both of the government’s desire to build social housing as well as its desire to get private sector developers to increase supply. The obvious sectors that should benefit from this policy focus are cement, home appliances and construction machinery. · Investors are advised to align their Chinese equity portfolios with the policy focus of the Chinese government. The play is on urbanisation of the peasantry as jobs are moved to the interior, as social housing (mostly for rent) is built and as incomes at the low end are hiked. · The key issue for the A share market has to be when mutual fund investors return to the stock market. With property still facing a negative headwind and with deposit rates still negative, this should be only a matter of time. But for now mutual fund subscription remains flat. · The decision by Saudi Arabia to send more than 1,000 troops across the Causeway into Bahrain, and the resulting escalating violence, is the most significant development in the Middle East region since the mass demonstrations erupted in Cairo. It certainly indicates that the Saudi Royal family is not prepared to tolerate a Shiite regime in Bahrain. · There is a growing risk of a confrontation between the Saudi-dominated Gulf Cooperation Council states and Iran, or at least a confrontation between their proxies. Events in the region continue to move to the advantage of Iran and against the interests of Saudi, all of which is partly influenced by the relative power vacuum which is the consequence of what is perceived to be a fundamentally weaker US. · The most likely outcome in Libya is for protracted civil war. But it is the fate of Bahrain and the Eastern Province of Saudi Arabia which matters most for global investors. · By seemingly agreeing to allow the now expanded €440bn “European Financial Stability Facility” to buy periphery bonds directly from governments, after such governments have agreed to specified austerity measures, the Eurozone leaders have achieved at least a temporary narrowing in CDS spreads. Still it is far from the panacea that holders of PIGS debt and equities are hoping for. · The ECB will still be responsible for trying to stabilise sovereign bond risks should risk reversion return as it almost certainly will. And the PIGS will still not be able to buy back their own debt at a discount, as had been hoped. · If the ECB does raise rates in April the move is likely to backfire badly, just as it did in 2008. Indeed if such a move does occur GREED & fear would view it as a desperate effort by Trichet to maintain the ECB’s credibility as an inflation fighting central bank even as it increasingly risks back door monetisation via its growing ownership of periphery bonds and its continuing massive funding of PIGS banking systems. · The willingness of the previous Irish government to take the narrow legalistic line that foreign bondholders should be treated the same as Irish depositors has cost Ireland dear. GREED & fear would have expected a more confrontational approach from the newly elected government. Still, so far the new government has been remarkably placid on the view that it has “no choice”. But the Euroland leaders should be careful of pushing the Irish too far. · GREED & fear’s base case remains that Ben Bernanke is in no hurry to exit quanto easing given the practical issues that entail, let alone raise rates. The events in Japan made it easier for him to maintain that line for now. · Thai Prime Minister Abhisit announced last Friday that he intends to call for a general election in June or July. The election is expected to lead to an increased majority for Abhisit’s Democrat Party which would be bullish for the Thai stock market. GREED & fear maintains a more than double overweight in Thailand in the relative-return portfolio. Please consider the environment before printing this email. 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