Mar 2, 2015

Russia: Yup, I got Another City. Time to Call for a Cease Fire!

February has been a good month for the equities market thanks to a more stable oil price, Greece backing down from their initial demands and a temporary ceasefire at the Ukraine front. The US equity market recovered strongly from their terrible January performance and caught up with the global markets in terms of performance. Things seem to be going well for the Americans and the Europeans for the time being. Meanwhile, the US central bank indicated that the rise in interest rates will go ahead this year, but they will moderate the pace of the increase in accordance to the economic conditions.

On the Asia side, things started to cool down after a sterling run at the start of the year. The manufacturing environment in China continues to worsen, prompting the Chinese central bank to lower their interest rates again in order to prop up the economy. Over at India and Indonesia, the political goodwill of the new leaders in the world's second and third most populous nation has worn off and the investors have started to look at the fundamentals of the economies again. The slow progress of the reforms in both countries thanks to the complicated political scene has lead to an adjustment in their various stock markets.

The month of February also saw the escalation of tax and corruption scandals for two of the largest organizations in the world: Petrobas, the Brazilian oil giant and HSBC, Europe largest bank. Petrobas is accused of corruption, triggering political unrest, dragging down the economy and implicating many multi-national corporation internationally, including Singapore's corporation. The HSBC Swiss scandal led to an even closer scrutiny on the practices of Swiss banks and open up the debate of the liability of the directors of the banks in the event of facilitating criminal activities. The Petrobas scandal practically pulled down the entire Brazilian and Latin American stock market and the HSBC Swiss scandal will probably lead to more investigations, leading to more fines and falling share prices for the international banking community.

The same story seems to be playing out like what happened in last year. Positive start to the year and the worries start to build up over the months before a big correction in August to October. The months building up to the interest rates rise in May will result in lots of volatility from March onwards. As usual, we will wait for a meaningful correction before increasing our exposure to the equity market again. Now that we are into the 6th year of the global bull market, it pays to be caution going forward.

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