Forest For The Trees

“If stock market experts were so expert, they would be buying stock, not selling advice.” – Norman Ralph Augustine

Last Friday I had a coffee with one of my banking relationship managers down in Singapore. I like to catch up with him when I’m down there a few times a year just to see what people on his side of the business are thinking and more importantly, what products he is aggressively pushing his clients into so I have a sense of where the next potential landmines in the market might be.  He usually does the same to me, knowing that I’m in the business, asking me what I think of the market and how we are positioned for the coming months.

For the first time since I’ve known him, I actually had to pause and think about my response. Not that I don’t think about it day in and day out, but for a split second my inner voice was screaming “I have no f-ing idea!!!”.  

The irony of it all is that it’s the truth.  As an investment professional and licensed asset manager, investors entrust us with their hard earned cash under the assumption that based on our (often brief) track record, we are supposed to have the knowledge and investing acumen to outperform the market and generate excess returns for them.  

The truth is that no one can predict the future, period.  Sure, asset managers can make educated bets on how certain events will play out, and we can also use our resources to quickly react and adjust our positioning if our initial assumptions prove to be incorrect, but the cold hard truth is that no one actually knows what the market is going to do in the foreseeable future, let alone the next few months.

It’s clear that trade wars have dominated both headlines and market sentiment as of recent and the longer these concerns persist, the more time we are given to digest the ramifications and the true impact of all the noise.   

The current trade war fallout has resulted in a divergence in market performance between the US (strong) and EM (weak). And while the overarching threat of a longer-term impact to Chinese growth remains a possibility, at this point it seems that most of this noise is merely political posturing rather than truly market affecting.

Indeed some specific industries, sectors, and companies will see fallout off the back of this trade war tension. Many have already seen corrections in their stock prices. But in truth depending on which side of the argument you prefer, all that this back and forth has really done is create a great opportunity to buy EM at cheaper prices, or for the adventurous investors out there, a chance to short the US at even richer valuations.

Earnings season is upon us now and despite the headlines and tweetstorms, the general economic outlook and sentiment remain positive.  CEOs of companies are finally addressing the issue of tariffs in their earnings calls but quite frankly the overall impact has been minimal. No one seems to be concerned at the moment as optimism and high fives abound in this raging bull market. The job market continues to be at near full employment and the greatest risk that investors are finally starting to murmur about now is inflation.

All the while the divergence between US and EM continues to widen, although China’s policy easing measures supporting special bonds for infrastructure spending that came through earlier this week seem to have bolstered the Asian markets for the time being.

1-month HSI Index performance, Source: Bloomberg

Over in Hong Kong, the HSI continues to trade within the tight 28k – 29k band that it has over the last month and we continue to sit and wait with bated breath for some sort of breakout whether it be on the upside or the downside.  My gut tells me that the bottom has now been priced in, though I would have loved to see a low 27k handle on the index to pile into some of the names on my watchlist. Alas, it seems mother China has bigger plans for us so we will sit and wait to trade another day.

In the meantime, let’s continue to watch this ping-pong match of a market and get through the rest of the results season (holy guacamole on Facebook last night!)