My 2 Cents:
Mid-Year Forecast


          Many of you may remember that global stocks experienced a sharp, yet brief, pullback in February due to concerns about slowing US corporate profit growth, a possible recession, the meltdown in the US sub prime-mortgage market and a serious concern about a bubble developing in China’s equity market and the impact it could have on world markets. Despite these changes in the landscape, I still believe that investors should overweight equities in their portfolios.

          It is worth noting that this latest bull market has seen four meaningful declines of 5% or more, with an average drop of 7.9%. However, each of these declines followed a 15%-plus rally in the MSCI All Country World Index. So, for long-term investors, the biggest mistake would have been to sell into the dips. In fact, smart investors have been doing the opposite i.e. buy into the dips and stick to a tried and tested discipline of Dollar Cost Averaging technique. 

          Moreover, from global equity valuations point of view, share prices have generally lagged behind the recovery in company earnings (See chart below).

          The MSCI World Index’s trailing 12-month price/earnings ratio of 17 times compares favourably to its long-term average of 23 times, and is not even close to its peak of 35 times that was reached in 2000.

          Although, there are certain markets, particularly the emerging ones like the Stock Exchange of Thailand (SET), that have a nasty habit of surprising investors but this is something that investors must come to term with. When stocks get overbought, the market typically clears out the over-leveraged ones first. And the best way to deal with short-term volatility is to invest for the long term as witnessed by the performance of our LTF and Enhanced Equity Funds below:

Source: FAM