Diversify your investments though America may avert the fiscal cliff
While US President Barack Obama’s re-election has erased global uncertainties about a “greenhorn” coming to power should Mitt Romney have won, Republicans have retained firm control of the House of Representatives and are showing no signs of easing the political stalemate with a more bipartisan approach. But a last-minute bipartisan compromise over the spending cuts has temporarily spared the country from a fiscal cliff, setting the US and global equity markets on yet another upward spree.
A cliff the world can’t afford to fall off
The bipartisan deal was reached simply because the US is “too big to fail”. But a further compromise has yet to be reached by the late-February deadline to curb the federal deficit, or else the country would face another version of the fiscal cliff. Disordered economic cutbacks could force America back into a recession, thus dealing a heavy blow to the global economy. Even if not until the last minute, a solution, albeit a makeshift one, must be worked out to keep the ball rolling.
Political issues in the US are far less complicated than in the Eurozone, where for the time being at least, politicians from different parties in debt-laden countries seem to have finally managed to come together to avoid a domino effect. With this in mind, the US should be able to live through deficits in the immediate years ahead, despite the fervent debates that are bound to ensue between both parties.
Bottoming-out driven by new technology
After the financial tsunami, world leaders — unable to think in the long-term — have been “crossing the river by feeling the stones”. As for Obama and Ben Bernanke, Chairman of the Federal Reserve, their first priority was to save the banks, then the real-estate sector. It was also their hope that capital would be channelled into the real economy, and that it would bottom-out with the help of new technology to create more jobs.
The bubble that burst in the US real-estate market has been described as the “Mother of All Crises”. In recent months, thanks to ongoing low mortgage rates, property has begun to rebound. Low property prices, along with a rise in job openings and consumer confidence, should point to a prolonged comeback in the property market. Even the renowned investor Warren Buffett, who admitted that he had previously been too pessimistic, has recently begun investing in real-estate.
Equity markets to rebound, but diversification still advisable
Stock markets usually reflect economic conditions six months into the future. At an earlier stage, the excessive surge in US equities was attributable to the deliberate efforts of pro-Obama key investors, such as Buffett, to create a wealth effect in the stock market to please middle-class voters. As such, once the election was over, and faced with the “fiscal cliff” crisis, the equity markets were quick to slide down from their highs. However, in the hope of economic recovery, I expect that stock markets will surge again, and there will be better corporate earnings when the two parties reach an agreement. This year should be a good one for global equity markets.
Obama’s continuation in office will also help stabilise Sino-US relations. This, in turn, will be conducive to the early launch of more stable, yet progressive measures following China’s leadership reshuffle. As a result, the Chinese economy is likely to perform better in 2013.
Nevertheless, economic re-heating in both the US and China may lead to a resurgence of inflation. Therefore, from an investor’s point of view, it is still advisable to diversify into gold and other precious metals, as well as agricultural products such as corn, which is presently much sought after.
Recovery of the US property market signals slump in Hong Kong
The recovery of the US property market, together with that of the economy as a whole, may result in an early termination of the ultra-low interest-rate period. It may not happen before 2013, but will take place no later than the end of 2014. This would certainly be bad news for Hong Kong’s over-heated property market. So, be forewarned: when the US property market starts to thrive again, it is time for the Hong Kong equivalent to go into a slump!
Manulife is not in a position to verify the content of the above article provided by the writer strictly for information purpose and does not guarantee its accuracy or reliability and accepts no liability (whether in tort or contract or otherwise) for any loss or damage arising from any inaccuracies or omission. Any opinion or estimate contained in the above article is made on a general basis and is not to be relied on by the reader as advice.
About the writer
Peter Tsang is a professional columnist for electronic media, online media, newspapers and magazines. Having worked in the news media for more than twenty years, Mr. Tsang is also a well-known financial commentator and expert in international affairs. In addition to serving Hong Kong’s media, he was once a special correspondent for the German Press Agency, dpa.
He has authored several books on investment and international situations, including Practical Tactics for Value Investment (《價值投資實戰》),How to Indentify Super Value Stocks (《發掘超值股》), An Investment Guidebook in Hong Kong Stocks (《香港股票投資指南》), An InvestmentHandbook in Stamps (《集郵投資手冊》), and The Third Indo-China War (《第三次印支戰爭》).
Mr. Tsang graduated from Wah Yan College, Kowloon and Hong Kong Baptist College, and has become a follower of the Commodities King, Jim Rogers, in Value Investing.