As of writing in early March 2016, the worldwide markets are rebounding slightly and the question arises of whether or not to re-enter or not since we are holding mainly defensive funds in the model portfolios. We feel there are indications of headwinds most certainly for Emerging Markets and also Asia along with Europe. We also feel that from these indications a new financial crisis is forming and for us we will stay on the side lines for now. This report summarises what we are concerned with in some of the major markets.

World Market Update

Here is the current world market performance as of 22 Feb 2016 (Fig. 1)

Fig. 1 – 2016-02-22 World Markets Performance

The U.S. is relatively the strongest and (Fig. 2) shows the S&P has corrected -15.3% from its 52-week high to its 52-week low. This sector is still in the channel or what we call Bear Phase 2.

Fig. 2 – S&P 52 week correction (Source Stockcharts.com)

Europe is second and (Fig. 3) shows the Dax has corrected -29.8%. Still relatively in a Bear Phase2 consolidation channel.

Fig. 3 – DAX 52 week correction (Source Stockcharts.com)

The Nikkei for the same period has corrected -29.1% and looks weak since the beginning of 2016. It has already broken the channel and in our opinion is in Bear Phase 3 with further downside potential.

Fig. 4 – Nikkei 52 week correction (Source Stockcharts.com)

A poor performer is our local market the Hang Seng Index at -36.1%.  With the current rally in this market we believe the resistance of around 20000-20300 would be quite strong.

Fig. 4 – Hang Seng Index 52 week correction (Source Stockcharts.com)

However, even worse off is the Hang Seng Chinese Enterprise Index HSCEI at -49.9%! This index summaries the H-shares listed on both the Hong Kong Stock Exchange and the Hang Seng Mainland Composite Index. Bear Phases are apparent and whether it will continue to further decline will depend on any specific news this year (Fig. 5).

Fig. 5 – Hang Seng China Enterprises Index 52 week correction (Source Stockcharts.com)

Observations from 2 Major Banks

Standard Chartered released its results for the year a few days ago and losses were reported. An interesting observation is if we look at the same time the previous year, around Feb 2015, their strategy has been to try and make money in the first 3 quarters and change its strategy in the 4th (Fig. 6). For both 2014 and 2015 the effect of this can be seen in the stock price moving lower.Standard Chartered’s business is 90% Emerging Markets, a sector which suffered severe losses during this time. The same situation happened this year and we may or may not see a similar case going forward indicating weakness in the Emerging Markets sector.

Fig. 6 – Standard Chartered Q4 during 2015 & 2016 (Source aastocks.com)

Now turn to HSBC. HSBC released its results also and similarly money was made in the first 3 quarters but not in the 4th (Fig. 7).HSBC represents businesses in Asia and Europe. Judging by similar price action, we believe for the coming year these markets will have headwinds. We already see the GDP reports for certain countries such as Singapore and South Korea being lower, and we also believe Europe is not out of the woods yet.

Fig. 7 – HSBC Q4 during 2015 & 2016 (Source aastocks.com)

Conclusion

Apart from Gold, the world markets are in Bear Phases 2 and 3. These need to finish correcting before we will expose the portfolios to them.

 

Best,
Michael