Exactly one year ago, I titled “Income to Growth rotation” for my GMC Nov 2019 updates. True enough, growth stocks had a spectacular run in the past year, led by technology sectors. The market valuation is near dot com bubble level. Is it a time for a change now?
In my last month’s update, I started saying to embrace the volatility amid the US election. As mentioned in my Telegram channel in early Nov, the market has already expected Biden’s sweeping win so there was no surprise.
What really shocked the market was not the US election result but China’s move to clamp down internet giants. To be more specific, China’s move was targeting more on the systematic financial risks brought by fintech and real estate sectors. China’s first antitrust rules sent the share prices of Alibaba, Tencent and Meituan tumbled. I believe this has an immediate impact on China’s investment.
Halting Ant Group’s IPO 2 days before its debut is not conventional. While the world has finally started to embrace China’s financial market. This sets a bad precedent. The capital market doesn’t appreciate such moves and it may dampen the enthusiasm of foreign capital to invest in China, or even Hong Kong’s stock market. However, it could be just China’s authority’s intention to preempt the market before the hot money is out of control. I had intended to overweight China technology companies, now we need to be more selective and observe further.
I take some profit from direct China exposure since our China position has made more than 50%.
Next, it is about antitrust law. In my October GMC updates, I have highlighted that, besides the US election, the “elephant in the room” is antitrust investigation again FAAG (Namely Amazon, Apple, Facebook, and Google). Now, China has made its own anti-monopoly movement to the equivalent (namely Alibaba and Tencent). This seems to show that the technology sectors had a lot of headwinds.
At the same time, we have seen traditional sectors such as banks and real estate are sneaking back. With the graduate re-opening, share prices of tourism sectors have also started to move.
Thus, I believe we are on the verge of value rotation.
For the bond side, we have seen the US 10 year treasury yield curve is steepening. In a layman’s term, a steepening yield curve means an “inflation expectation” in the future.
As I have explained a few months ago, despite the low demand due to COVID-19, the same pandemic will cause supply-side disruption. The imbalance between supply and demand will eventually drove up the commodity prices. When I say commodities, I am referring to oil prices and agriculture prices. I have positioned some commodities position since June and it has rallied 15%.
The rise in bond yield also means that bond prices are facing pressure. So I will reduce bond holdings.
This article is a summary of my latest investment ideas for this month. If you are interested in finding out more about how I work with my clients to manage their investment portfolios, submit your request using the form below.
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