01 January 2010

2010 Economic Forecast

After some spectacular performances displayed by global equity markets, how is 2010 heading? In fact, 2009 is a year, in which, share market around the world performed the best in recent years. Indonesia is leading all the way with an awesome 87% gains, follow by China, India, Brazil, Hong Kong, Singapore, and Taiwan…

Meanwhile, Malaysia too joining the bandwagon by rising 45%, which was the index’s biggest annual gain since 1993. All of this was started since March 2009 when risks appetite increased and low interest rate environment surfaced.

Is this Sustainable?
However, all of this was fueled by excessive liquidity, couple with low interest rate, with oversold position of global markets only. The next engine would be earnings growth from companies, where this is the real food for the “Bull”. Because low interest environment forced people to invest, and a lot of people borrow USD to invest globally, which gave them handsome profit.


So, what’s the prediction of 2010?
As long as US do not hike interest rate, the current rally would persist going forward. If not, higher US interest rate will encourage people to divest all their investments globally in order to pay back the USD loans (See diagram). Anyway, US would only hike interest rate if their economy was on a stronger footing, where unemployment rate drop, retails sales up, and manufacturing sector recovering. All of this may happened in 2nd half of 2010. So, you still could enjoy your investments for few months more.

Advise:
US must work hand-in-hand with major governments to manage the reversing of interest rate environment, in order to minimize the impact of sudden currency surge of a particular country. One of it was to hike interest rate simultaneously with major countries globally. And, I believed that Obama's administration already knows it (hopefully).

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