Saturday, 19 October 2013

Hang Seng 2013-16


My view of money in the market : burnt white paper cylinders, created by Chinese artist Qin Chong on display at Asia's art fair 'Art HK 12' in Hong Kong
After a positive year in 2012, with a solid increase in the last half of the year – mirroring that in many other markets, the HSI started the year not far off is 5 year highs.
January saw no change in the pattern but there was evidence of some weakness in February.
This picture continued throughout March and most of April, no  major drop but gradual declines.
However the second half of April saw a change in direction and the index turned up for 4 weeks , although not quite reaching its January peak.
But it was too much too quick and in late May a decline started.
This decline became more pronounced in June  and the index fell relatively rapidly to levels not seen since quarter 3 2012.
But the period from late June into July saw a turnaround and solid buying saw the index rise again into August.
August itself was a month of fluctuations as the market failed o find direction due to a mix of positive and negative global sentiments.
September was a different matter, with an increase in the flow of funds to the market leading to a bit of a toppy bubble.
The next three months to the end of 2013 look more mixed, there is likely to be no overall trend for a couple of months as the market seeks to find  direction.
Then December might bring a decline or at least inertia.
The pattern for the first five months of 2014 is much the same. There is not enough momentum to carry the market much higher and there is a lot of confusing information that makes investors a little nervous.
May might see some uptick though as there is a burst of enthusiasm.
June and early july are also positive times with increased investment.
But the latter part of July is tricky, trade is reduced and the index likely to fall.
But this is short lived as August looks to be an excellent month with positive investor sentiment and a distinct preference for this market.
It is back to a more mixed situation in September and October as global events impinge again.
Over this period no trend is clear as positive factors are damped out by caution.
There is a spurt at the beginning of November, even though there is still pressure from global influences and more confusing statistics.
With opposing opinions December just sees switching of preferred industries with no overall effect.
January and February 2015 are difficult. Not only are   global influences having an effect but there some really hard trading conditions and a lot of investor caution.
The period March to May sees the index all over the place as factors such as currency shifts, and technology issues offset an increase in positive sentiment.
News and events come to a head around mid June and once again we see shifts not in the index as a whole but in the value of the constituents as a more cautious profile is assumed.
September, however, is a booming month. Unexpectedly positive news causes short term speculative buying.
There is more of his initially in October but then some fear sets in and the index reaches a peak. By the end of November negative news causes falls.
December is this a mixed month as investors must take stock of what has happened during the year and the index as a whole becomes less attractive.
January 2016  sees a short burst of positive sentiment but the latter part of the month looks dominated by more long term concerns.
The period February through to April is generally good. Most of the time there is enthusiasm and a return to previous peaks. But there are concerns in the background that  mean those peaks can’t be exceeded and might lead to problems later on.
May is a month of major funds flow. Structurally something is occurring that will change the fundamentals of the index significantly going forward. This might be a change in constituents or events that impact significantly on those constituents.
June thus sees the end of a cycle dating back to 2004, and  there is a distinct feeling of inertia – ‘where do we go from here’?
 This mood continues into the next quarter. But there are positive signs as well in terms of overall global investor sentiment which is favourable.
However the overwhelming influence is one of caution and reluctant to take risks.
 A briefly positive boost in August is not enough to overcome the mixed conditions which see the index going nowhere over this period in total.
The balance in October and November is also negative, with the biggest concern being the fundamental make-up of the  market even with some positive  PR.
 So 2016 ends on a turning point in terms not so much of price but of what the market will stand for in future in what has become a new environment.

Hong Kong $ 2013-16

Not a Hong Kong Architect,but a lovely bit of HK architecture nevertheless

As long time readers of this blog will know I stuck my neck out rather with the original HK$ forecast – making the claim that it would be absorbed into the Renminbi by the end of the 2008-12 period.
Clearly that didn’t happen – although many of the surrounding conditions ( wider Renminbi acceptance etc.) did.  We already know that the HK$ has become less important since 2012
  I could ignore the HK currency now as the RMB is far more important, but it is another case of I’ve started so I’ll finish. In any case there is a juicy configuration coming up over the next couple of years that affects RMB/US$ and HK$ - shame to miss it eh?
 The value of the HK$ fluctuated quite a bit in 2010-11 around its dollar peg-but as we will see that was a sign of life – no fluctuations from the start of 2012 might just be an indication of loss of interest.
Despite the quarter 4 2012 speculation that the peg was going to break January 2013 was not too interesting. But February saw the creeping effects of the RMB weaken the HK$’S importance even more and start to the peg. There was little else to note in the period to March.
In April the RMB reached a record high vs. the US dollar, further influencing trade in the HK$. Another key point was reached this month.
The period May to June saw another milestone as average daily RMB volumes exceeded HK$ ones in HK for the first time. That came just three years after Beijing relaxed rules and allowed the RMB o trade in Hong Kong - Hong Kong still sees booming trade ( partly as a result of its peg and the effect US quantative easing) but there is now more than a hint that that trade won’t be in the local currency for much longer. The writing is on the wall.
 July and August saw a return to the conditions of January and February, and other economic events in Asia gave unexpected support to the life of the stable peg. It is not all good though – the combined effect of the peg and US easing has contributed to the property boom in HK too – this cannot last and a bursting bubble may be the catalyst for currency change.
 There will be little change in October, all eyes are elsewhere, yet behind the scenes things may be changing slowly.
November and December may be months for some interesting statistics and announcements. It could also be the point at which some bubbles peak.
Although January sees another step in the direction of freeing or dissolving the HK$, nothing concrete will happen in the first quarter of 2014
Things will get more interesting in April and May, when there could be progress towards a fully available RMB. There may also be the start of more restrictions in HK which reduce trade in general. It is another key time.
After this there is a sense of wait and see right the way through to September.. There may be some excitement about the possible future changes and denials by those in authority that there are any such plans for change. It is a powerful time for money to flow.
Another phase which signifies a weakening of the bonds that tie the currency starts in October. The influence of investor interest in alternatives can’t be overstated.  
December has the feel of a calm before the storm.
As we have seen elsewhere there are conditions in 2015 which are shouting change. Here is no exception. There are a number of signs that indicate a major shift in the currency.
January, however, seems to be holding on to the status quo albeit with a lot of surrounding pressure.
Then come three months when there is a real sense of everything being turned upside down. There are challenges to the peg and indeed background events which are opening up an opportunity to change the currency arrangements.
May sees a month of consolidation – with little progress.
June to august sees another phase where the sheer volume of money being transferred is enough to break down any barriers. The HK$’s independence is therefore under threat.
While less happens in September, there is still a significant flow of money which is creating momentum for change.
The last quarter of 2015 is key.
There is a new environment and a much more dynamic feel than in the last 2 or 3 years. A number of cycles collide and the currency peg is definitely under threat of dissolution in October, possibly due to external events as well as internal decisions.
However there may still be some difficulties as a new framework is put in place.
I am fairly confident that by 2017 the Hong Kong dollar will either cease to exist ( being absorbed into the RMB) or will be freely floating.
There is pressure even in January, as trade in the currency is reduced.
But it is from March that things take off as factors which have been building since 1991 cause a move into new territory-likely this is the dominance of the RMB.
At the same time the background factors created by the global environment which have been putting pressure on the HK$ are again at a peak now and as speculative pressure heightens it is hard to maintain the peg anyway.
 he period from June to September is characterised by control and regulatory matters. It looks like there might be one last effort to  stop the currency arrangements from breaking down. But the speculators will win, if not now by 2017.
Oct looks like being a transitionary month with not too much happening.
In the last two months of 2016, with no let -up in the pressure and its looks like 2017 starts with at least a floating HK$ if not one that has been absorbed into the greater RMB.

Indonesian rupiah 2013-16

A new currency for me, I was keen to get my G20 forecasting finished in 2010 so focused on the minimum of just the general country outlook.
Now I have a bit more time so am branching out. But it could be a bit of an experiment!
At the beginning of the 2013 the Rupiah was in a moderately good position reflection the many years of growth, even though this has tailed off a little towards the end of 2012.
However  it did decline a little vs other currencies in the first few months, representing some uncertainties about the future.
But the change was not significant and although there were some restraining effects there was also positive sentiment from some investors which protected the currency on the downside.
April and to a lesser extend May were relatively positive.
Certainly there was no cause for concern at this point. Nevertheless perhaps responding to wider issues, the central bank raised its rate slightly in mid June.
However the picture would take a turn for the worse, both in terms of statistics and external factors in July and even more so in August. So in July it raised it by ½ % and primarily to offset the rapidly declining Rupiah due to a general loss of faith in the regions following India’s problems,  at the end of August the rate was increased another ½%.  The deposit facility rate was also raised  and  a bilateral swap deal with the Bank of Japan extended.
 It was not enough, however and the Rupiah continued to decline with some rapid selling, falling nearly 6% in the month alone. Another arte rise was announced mid month. Unlike in India where the new bank head managed to stem the tide the Rupiah’s fall was continuous. It was being directly hit by much broader global concerns.
Although the decline is likely to even off in October there is still a lot of pressure on the currency.
The picture is slightly better in the final two months of the year with the possibility of supporting measures being more successful and the weakening of the particular conditions existing in September.
 However is still a difficult environment and volatility will continue into the first quarter of  2014. 
There is an attempt to manage the overall financial position at this time as longer term structural funding pressures are evident. This might lead to some rapid inflation.
By the end of March there is a shift towards more restriction – and a re-evaluation of the long term prospects for the currency,
The next few months seem to be somewhat more stable
The picture is much more restrained in June. There may be more interest rate adjustments or other actions, though one assumes that nothing too radical will happen around the time of the election.
 August sees a shift in sentiment. There is a boost in trade in the currency and probably a bit of relaxation leading to more liquidity and perhaps more inflation.
This might however mean a need to more actively manage or control the currency again.
The themes continue throughout the end of the year. Although there are less globally motivated pressures, there are consequences to the recent expansion and inflation that will inevitably flow into rate and/or value,
There is really not a lot of change in the picture in the first quarter of 2015 either.   Indeed the issues intensify again during this period – more than likely as a result of external, perhaps global factors. The inflationary picture looks set to continue too.
The second quarter sees a return to the focus on longer term structural issues and the balance of payments.
 While the background mood continues into July and August without much change in direction – there is the possibility of a sudden shock causing brief volatility in this period.
The end of the year is more moderated – there is unlikely to be too much movement in the currency in either direction.
Indeed December is probably one of the most stable months for some time.
While the imbalances in the currency’s backing that are caused by social inequalities continue throughout 2016, the year does feature some changes in emphasis.
The balance of payments issues are again to the fore but there are positive signs that the currency is now in a stronger position. Perhaps it is the relative effect of what is happening elsewhere.
Certainly by March there is a change in mood.
This new environment stays in place for the whole of the first half of 2016. On balance it is positive, there are less external shocks and the currency does not seem to fluctuate much against the broader basket of currencies.
It seems as if there may be interest rate rises in July as there is evidence that some tightening will occur. The overall picture remains relatively positive and any tightening will not cause significant falls in the Rupiah now and up to September.
October and November give some hint of a reactivation of inflationary conditions. This might be expected to lead to some reduction in value – though curiously the picture does not seem to suggest that during this period. Indeed on balance there is a consolidation effect which normally suggests little change in value.
The last month of the year has more in common with the first half. The picture is mixed, but there seems to be some restriction in place and perhaps more interest rises. 
Currency proclamation: 3 Oct 1946, Jakarta ,set for 12 noon in the absence of a known time
Source Wikipedia

Indonesia 2013-16

Gary Brettnacher / SuperStock

 Despite background issues such as inequalities and environmental ones due to deforestation etc, the previous few years have been moderately good for Indonesia. Not great – the tentacles of the 2008 financial crisis were too wide for that and the country is still a highly populous - but good. Carrying on a trend in place since around 2001-2. However whether as a result of external influences and /or internal policies things have begun to get somewhat tougher this year. The current account deficit, of  more than 4 percent of GDP, is fuelled by energy price subsidies and a thirst for imported capital goods that suggest it will be hard to tame.
Economically and politically there was nothing especially notable about the start of the year despite the fact that the expectations were for some difficult conditions. There were however major floods which led to landslides near the capital and 37,000 had to leave their homes.
Indonesia was also in the news internationally for the case of a drug smuggling ‘grandmother’.
The floods and landslides were the start of a season of such events which lasted into April.
Economic growth in the first quarter was ok but less than forecast  with a slowing trend over the year
May was a relatively calm month
 But peat fires in June caused heavy smoke pollution over Indonesia’s neighbour and the government was forced to apologise.
 July was characterised by incidences of instability- a small earthquake,  a prison escape and a stadium stampede
The economic situation only really began to be of central focus from July It was reported that in the second quarter of 2013, Indonesian economy slowed for the fourth consecutive quarter ,including a private consumption decline.
But it was the external financial events that were to have the most impact on the country. Confidence in Indonesia’s economy suffered in August due to a combination of a slowdown in China, the possibility of   US monetary easing ending and most noteably  a fear of regional contagion based on India’s economic woes in the same period. , Indonesia announced a package of comprehensive fiscal and monetary policies as a response to the pressures in the financial and trade markets.
The last quarter of the year seems to be more focussed on the economic outlook.  There is a period which suggests some unrest from the population and there is a likely to be a more noticeable turndown in growth rates as the cycle consolidates.
A new national social security system starts being implemented from January  2014, which is hoping to address some of the longer term imbalances.
Nevertheless 2014 starts with many of 2013’s conditions continuing. There is the underlying weakness as well as continued policy efforts to effect change. More action to address economic imbalances can be expected. 
February is a stable month if rather hard for the government,.
March and April are more unstable – there are likely to be moments when tension overflows – both in the physical environment and the socio-political one.
May sees another point of consolidation in the wider economic cycle, but it isn’t a bad month in general.
Campaigning starts in earnest in June  for the election in July. In incumbent present must change after two terms, so we know that this will be a time of major transition and the beginning of a new era. There are still economic challenges to be addressed.
Some of the underlying issues that have occurred throughout 2013-14 are activated again in August, there is likely to be a focus on wealth and government financing.
This picture continues into September and October, with once again a noticeable weakness in economic statistics and social welfare matters are to the fore. Environmental issues are also likely to be highlighted. There is a point where the identity of the people becomes important, and there may be a feeling of loss of control for the government.
November is better for those in power, with a  sense of calm control. But financing and investment issues are critical – perhaps caused by external events, and there may be earthquake or related activity.
These external conditions continue in December but there is a shift in the mood of the people around then. They become more nationalistic and less focused on trade.
There have been a lot of changes in the year but it will be 2015 when the impact of these is fully felt.
2015 may well be characterised by petty difficulties
January and February still see the shakiness that pervaded the last quarter of 2014, but there is renewed vigour and determination too.
March and April are mostly positive, there is certainly enough energy to push forward, even if there may be some residual weakness from the past. There may also be issues surrounding women’s freedoms.
The period May to August is however more challenging. There is still a lot of economic drive but there are more wealth and funding difficulties to be overcome as well as events that shake up the country’s institutions and standards.
However the pronouncements from the leadership are well received.
September is less eventful with only the background issues continuing.
Then in the last quarter of 2015, there is another period of energetic advancement, perhaps accompanied by some excess ; there is an indication of somewhat frenzied activity at this point – which is never good in the long run – leading as it does to over- depletion of natural resources and/or overspending. 
There are still funding issues, possibly balance of payments related to address   as well as potential for opposition to women’s rights.
The last few weeks of the year however see a much more controlled and balanced evolution in matters though.
There is a slow change in emphasis as we move into 2016. Some of that energy that was seen in 2015 is now less free to act openly – this means more regulation in economic terms, more surveillance of opposition in political ones.
This might lead to some groups speaking out vociferously against the country’s direction.
More dramatic shifts happen around March and April. There are a number of factors which seem to be undermining the foundations  of the country.
There is also a high chance of attempted unrest at this time which will be clamped down.
There may also be changes in the governing law. Some of the signs mirror those of 1989 when a new Islamic law was introduce
It is a critical time and comes to a head by May when international relationships come into focus.
These themes continue throughout June and July as there is constant challenge to the status quo. It is not all necessarily bad – it would be a good time for revolutionising working practices
August and September see intensification of events. This is a very challenging time – there could be fighting amongst different factions in the country.
It looks as if there will be a lot of external attention given to events in the country at this time. Other issues which may be highlighted in the short term in September are inflation and tsunamis or other floods.
There really is no let-up in the evolution of these events. The challenges continue throughout the rest of the year.
However October and November do include some moderating influences and even some positive financial news.
 However what is quite extraordinary about December 2016 is the number of signs that the whole external image of the country is about to change, it is on the brink but the events will become concrete in 2017.

Monday, 7 October 2013

Sensex 2013-16

Does this artwork have much to do with the stock market? Probably not. But I am a sucker for a nice mandala.
At the end of 2012 the Sensex was around 19500 within the bounds of the range it had maintained since late 2010 and over double its post financial crisis lows of March 2009.
Not an awful lot has happened in that time and values have been maintained perhaps at a higher level than is justified
This mood continued throughout January 2013. Although there were deep seated concerns regarding such things as corruption, there was still positive sentiment for the market as a whole.
 The market did adjust a bit though in February and there was some fluctuation in March as it endeavoured to find a new base.
April sees even more uncertainty and volatility as evidence was creeping in that there may be some change in India’s prospects even while there was an increase in risk acceptance globally again.
But May saw a resurgence in enthusiasm, even to excess.
A short term peak was reached around June though, and the market fell as new information suggested problems for India.
In early July the buying started again. But sentiment was more mixed and as a result the index must more susceptible to bad news.
 As a result there was more volatility, with a fall in the Sensex accompanying the fall in the Rupee in August. At the end of that month the index was around 18,000- 10% lower than 2012 but still much higher than 2009. 
In September there was some recovery as the uncertainty continued and the new RBOI head instilled some confidence. Indeed the market made a 12 month high during the month.
October, however does not look to be so positive. There is more uncertainty and some more noticeable negative sentiment.
There is less volatility in the last two months, but still no direction, the upside is weak but the downside in wait and see mode.
 But it is a short respite. Early 2014 sees the return of sudden events and consequent price fluctuations. There is  a feeling of that the market is dragging its feet.
However the balance of the first three months is still positive as there still seems to be big chucks of money being invested in the market.  
Unsurprisingly we will see fluctuations and volatility again in the run up to the elections throughout April at least.
 Expect these to be followed by inertia in May.
 This inertia lasts into June, when it is offset by optimism and big investment in the future.
July and August is characterised by optimism and growth in the index.
September is more mixed with a return to the volatile conditions and competing moods for investors.
October to November is an absolutely critical time seeing a big change in the way the index is viewed.  We see the same themes of big change in the currency – something big must be in the offing.
December is moderately positive and stable as the new conditions embed.
January and February of 2015 are very mixed. There is a return to volatility again and a lack of clear direction despite the fact that the longer term mood is one of market expansion.
March to May is a further positive time; perhaps too much liquidity and too much naivety mean that the market moves higher.
Although there is some investor doubt in June the bigger picture is saying that the index will rise – perhaps even excessively – there might be a bubble – although this might be the result of currency issues rather than fundamentals.
The same conditions run into August and September, though they start to tail off in the end of that period as the market consolidates.
The last quarter of the year starts with some inertia and disagreement between parties about where it will go next.
The latter part of the period is characterised by more of the volatile conditions as on the one hand exuberance is maintained but on the other there is a sense of caution returning.
In January 2016, sentiment is more negative and volatility noticeable; there may be the need to manage the level of trading.
February and March is better, there is less volatility as the index tries to find its right short term value within the context of the longer Indian and global trends.
There may be a technical issue in April and May and indeed there is a possibility that there could be a fraud or deception of some sort relating to the trading platform.
As a result June is mixed at best. There are some challenges to value as confidence may have been somewhat lost.
There may be some more technical issues in the next three months, but investors are more reassured and there is now likely to more positive buying.
 September itself sees the beginnings of a new environment though it will be a whole year before it becomes clear that this is a permanent rather than transitory change.
October and November see deep seated changes that will result in the re-evaluation of many stocks though not necessarily a change in the overall value of the index. The new environment means that some companies will suffer and some benefit and this is reflecting in the shifting picture.
This really continues to the end of 2016, with shifting out of some stocks and into new areas, there are some big investments being made in some areas but any excess froth in the market is controlled by the downgrades elsewhere.

Inidan Rupee 2013-16

India, currency, gold? money vs. religion. I think this little work of art says everything ...
The Rupee had lost some ground in the period up to December 2012 but was relatively stable around the year end at around the levels last seen in 2009
However in January the conditions of November 2012 went into reverse and the currency recovered somewhat to the start of March. Sentiment was not particularly good though and interest rates were dropped slightly in January
They were dropped again in March, at which point there was a wait and see attitude.
The Rupee held its value over the period to the end of May but April saw a radical shift in the overall currency climate. At this stage though it was accompanied by a sense of delusion that kept the value in place.
But another rate change at the start of May confirmed the trend.
The real shift in sentiment happened over the May-June period with the realisation by the end of that quarter that debt levels were a significant source of concern. By the time July started the Rupee had fallen to below its 2012 lows.
It was over the next two months that things really unfolded though, with the currency losing 15% of its value., much of this is August when a number of things occurred simultaneously – a new 12 year and a new 2 ½ year cycle started. In practical terms this coincided with attempts to support the currency a rise in rates to commercial banks ( which itself could exacerbate the overall problems) , levies on gold imports, etc- however these did little to reassure nervous markets and perhaps did the opposite. In the end the problem is the deficit  and down to the government not the central bank
The announcement of a new head of the RBOI was due to happen anyway.
September saw the change in leadership become actual at the RBOI and an increase in the bank rate.
This seems to have helped at least for a while as the currency  has recovered a small amount of ground. Sentiment, however, remains very nervous.
The picture remains shaky in the final quarter, but the conditions have changed with the new leadership. There is more credibility for the bank, more caution in policy, and  change in foreign perspectives too. The uncertainty over rate targets etc. is also lessening.  Although the forecast for the country is more difficult the Rupee looks more secure at this time
The first two months of 2014 show little change from the conditions of November and December 2014. It could be described as inertia as external factors are more important.
The period March to May , because it corresponds with the run up to the country’s elections, seems more focussed on relations than on policy- there may be disputes over the direction the bank should take.
June and July see a return to some of the conditions existing in October 2013. But this time they are even more powerful. While the currency is not being undermined as in summer 2013, there are some pretty major events pertaining to the debt position.
August is a mixed month and may see a rate change.
September sees another step change in sentiment, and an excess of funds flowing- it is not entirely clear what direction this is in though.
More important is October and November when there is a major 30 year shift in the tone of the Bank and the currency. There is a new policy  which covers rates, debt and attempts to manage the growth cycle in the longer term. One presumes that these will support the Rupee in the longer term.
 This does create some concern about the bank leadership but that does not turn into anything concrete.
There are indications that the Rupee may change form in 2015.
However in the first three months conditions are relatively stable. But there are signs that some long term conditions, particularly relating to inflation, might need to be addressed.
April and May are much more exciting . It is not all bad, but there is likely to be some gradual value changes . The form of the currency  is subject to discussions, but nothing firm happens yet.
There are changes ( probably falls) in the value of the Rupee in June and July but there are likely to be fluctuations rather than a trend. 
In August inflationary factors seem to undermine the value and there are further plans for change. The Indian chart is showing significant events in a global context at this time so they might be the reason for the currency effects.
September will probably see a revaluation and the new currency taking shape.
This leads to currency price stability in the last quarter, although there will  inevitably be difficulties with adoption by some people.
These difficulties start to be ironed out in early 2016. Inflation seems to be more controlled and the signs are that value is being boosted.
 This looks a particularly good time for the Indian currency.
There seems to be too much liquidity though in March to May. As a result there could be fluctuations in value and a lot of trade. Nevertheless there is a background calming influence.
June is an extremely positive month and is likely to be accompanied by interest rate changes to quell over enthusiasm.
July and August are more mixed months, there is a lack of stability but it is moderated so no trend is likely. Trade volumes are  also more controlled.
September is also mixed. Sentiment is good and rates may again be changed to adapt to the newly emerging environment. There are still long term changes occurring in the country  in the background that are affecting the overall banking sector.
The last quarter of 2016 sees continuance of these themes but with trade in the currency being more difficult for the bank to manage at first meaning that by December the RBOI must put in place some measures to moderate the  level of activity.