Tahsanul Hoque is working in Internal Accounts Payable in Morgan Stanley. He is a postgraduate of Ohio State University in Finance and a graduate of North South University. Even though he is a banker by profession he is also an avid investor by choice.
Tahsanul had earlier warned investors to stay away from emerging markets in his earlier post in February.
Wow what a difference three months make. US economic growth totally halting to 0.1% due to extreme cold weather, Russia forces still lingering near border of Ukraine and China showing much worse slowdown than expected. So how should your game plan change?
It is very much clear US growth is accelerating in the near future. The recent economic data indicators point to growth recovering. However some hidden plays are already happening in the market. We are seeing growth stocks being hammered and value stocks rising up. Defensive sectors such as utilities have shown a strength. This is purely a warning sign of an impending market correction (not market crash) of 10 to 15%. We had a phenomenal bull run in 2013, possibly one of the best of all times. With Fed slowly but surely on course to end QE by August/Septembers, markets have shown weak technicals for going up now. The downside risk is getting bigger. All that liquidity that FED has pumped is now slowly crawling back and that will definitely pull back stocks.
For the next 1 or 2 months till June, I would suggest people still remain in value stocks in financial and tech sectors. I have Wells Fargo (WFC), Discover (DFS)etc in financials just to capture the positive economic growth news due to Spring rebound and tech stocks like AAPL which have lots of positive (maybe even negative) catalysts coming up in the next few months so little downward risk, MSFT (just playing their turnaround game since new CEO came in although I will sell it soon as I am unclear the impact of Nokia purchase on its financials) and YHOO (speculative proxy play based on Alibaba IPO; probably will keep on rising in entire summer). However I intend to sell my financial stocks by June and will probably short some bubble stocks like PLUG, LNKD, YELP, TWTR at that time.
After market correction ends around September or October, I will definitely add back WFC and DFS when they become cheaper. Possibly might add exposure to American Express (AXP), some good growth biotech stocks like Gilead (GILD) and Biogen(BIIB) and possibly even Facebook since I think FB might be a great growth play for 2015 and I hope it comes back to around $40 after market correction. I will keep my AAPL position till end of 2015 at least.
I clearly warned readers to avoid emerging markets in my earlier post. I still think with Fed’s QE ending near in fall, there is even higher chance of emerging markets correcting. And China is already slowing down. Either way, these are not good catalysts for emerging stocks to move up. So if you are a short-term investor, I suggest you still avoid emerging markets and wait till the smoke clears in Fall 2014. However I will say if you are a long-term investor, then definitely on valuation level, emerging stocks are getting cheaper everyday. I would suggest buying them if you are playing the long game as surely, for long run the emerging markets are undervalued. But I am sure you will get good entry point if you decide to wait 6 months more.
I believe Euro is quite overvalued. And Eurozone faces the risks of clear deflation. I am not a Europe stock market expert but since ECB are clearly aware of deflation risks, they have a good chance of initiating quantitative easing within next 6 months and that will definitely push stock markets higher in the long run. I might add some index funds based on Europe since I have less stock selection expertise about that market.
Either way, I can’t wait to see what happens around August/September around the world. And I also can’t wait to see what happens with my AAPL investments. I always believed it was undervalued but I never like Tim Cook; he is too slow to realize the competitive changes. This year it will break or make the stock. Either way, I will become richer or bust surely.