BT INVEST

A Personal Finance and Investment Arm of The Business Times
MARKET TODAY:

Archive

Outsmarting the Red Monkey in the Year of the Monkey 2016

Outsmarting the Red Monkey in the Year of the Monkey 2016

In the new lunar year beginning 8th Feb 2016, we welcome the Year of the Monkey.  2016 is the year of the Red Monkey as the color of Fire is connected to Red which is the calendar character corresponding to Monkey.

Unlike the Year of the Sheep where we are exiting, the monkey is a mischievous, smart, wily and vigilant character, unlike the sheep which belong to the docile class of animals. The sheep’s natural character affinity is milder and tend to co-exists with the others in the green grasslands peacefully. Within the flock, the sheep tend to observe the discipline of the leader sheep well and hold the leader in the greatest esteem.  The monkey is definitely very different then.  So how will investments pan out in the Year of the Red Monkey?

Chinese astrology is based on the yin-yang 5 elements of wood, fire, water, earth and metal.  Combined with each of the 12 animals, every birth chart will have its own 5 element weights which is the basis of prediction of one’s fortune, marriage, health and life. 

The monkey swings between dare-and-dare you and is a naughty animal. The monkey contains a high element of Metal and Water.  The latter character is connotes a high element of wisdom and danger with relentless challenges. This is a sharp contrast from the Year of the Sheep where we saw a balance among the 5 elements.  Not surprisingly, the stockmarkets did well in 1H2015, only to underperform in 2H2015.

Do not expect the Year of the Monkey to be easy for investments.  You need to outsmart the monkey to do well in the lunar year 2016.  Do expect world events impacting stock markets and investments to change sharply and quickly, like the agile monkey.

Coupled with the 5 elements, people born in the Year of the  Monkey tends to be fast learners, great opportunists and are smart.  To outwit the monkey, investors have to be doubly smart, be quick-witted and decisive in making investment and trading decisions in the Year of the Monkey.

My predictions in the Year of the Sheep 2015 (http://einvesthub.btinvest.com.sg/experts-of-the-month/2015/02/13/expect-the-unexpected-in-the-year-of-the-sheep-2015/) has turned out to be almost prescient.  I had predicted that –

Angry Sheep can dislocate markets
Equities will continue to outperform bonds
Be prepared for black swan events

For the Year of the Monkey, I would be cognizant of a few investment trends –

  1.  Expect markets to be volatile in 1H2016

The widely expected Federal Reserve interest rate increase after 7 years of zero interest rates finally kick-in on 16th Dec 2015.  The uncertainty going forward into 2016 would now centre on how fast interest rates will increase at each Fed meeting and what would be the ultimate absolute increase at the end of the cycle.  Expect markets to behave like the monkey’s “dare-you” character going into each Fed meeting which will give rise to wide market swings.

  1.  Expect market swings to be sharp and quick

Unlike markets in the Year of the Sheep which performed like a Tale of 2 Cities to the Tilt where it did well in 1H2015, only to give way to underperformance in 2H2015, I would expect greater and more frequent market swings in the Year of the Monkey.

The source of greater and frequent market swings will originate from fickle-minded market participants relating to how fast and how much interest rates will climb.   An analysis of the past 3 US fed interest rates showed that the fastest climb was in 1999 where interest rates were lifted by 175 bp over a period of 12 months after recovering from the Asian Financial Crisis in 1998.

The FTSTI (then known as the STI) experienced 3 wide-swings 120 points of between 1,280 – 1,400 in 1H1999 and was almost 11% down by July 1999.  Then, surprise surprise, it did an incredible 1,000 points (trough-to-peak) rally up in 2H1999, closing close to 2,550 at year-end.

The longest climb was in 2004 when the Fed raised interest rates from 1% to 5.25% or a total of 425 bp over a period of 25 months.

Again the STI, like the playful monkey, had wild swings – it started the year at 1,764 points and shot up almost 200 points by April 2004.  Then in the ensuing month, it crashed 200 points to 1,700 on 17th May 2004.  Thereafter, it staged another great monkey swing from 1,700 points to close 2004 at 2,066, a great 366 points up.

  1.  Events can unfold quickly

Previous Monkey Years in 1980, 1992 and 2004 have seen monkey business in the capital markets.  They have coincided with sharp turning points.  One has to be a shrewd and sharp opportunistic investor to benefit –

  1.  On September 1992, George Soros made his famous billion dollar shorting the UK Pound.  This opportunity was created when the Bank of England tried to defend the depreciating Pound.  Currency markets presently have been bi-polar since 2015 – short Emerging Markets currencies like the Real, Ringgit or  Rupiah and long the US$.  To me, this is an overbought trade and I would be looking at turning points in the Year of the Monkey. 
  2.  2004 was the turning point of the FTSTI, coming out from the double whammy of the long decline from the Dot.com bubble from 2000 and SARS in 2003 which saw the FTSTI fell 45%!  The FTSTI was the worst performer among Asian markets in 2015.  The Monkey is commonly regarded as the emblem of trickery, thus I would be looking for possible turning points in the Year of the Monkey. 

The cheeky Monkey bursts with exuberance and moves and dazzle with lightning pace, so should our trading strategies be in the Year of the Monkey.  A smart investor can only do that if he or she understands the industry dynamics of the companies he/she is invested into.  A firm grasp of companies’ balance sheet is crucial.

For sure the Year of the Monkey is going to shake, rattle and roil financial markets.  One has to be as intelligent, witty and nimble as the monkey to do well in such investment landscape. 

Happy Investing in the Year of the Monkey.

Gabriel Yap
Gabriel Yap

Mr Gabriel Yap,CFA was an eminent stockbroker who retired from stockbroking in 2009 to devote himself to philanthropy to help the needy, poor and handicap globally. He has donated and assisted Charities Aid Foundation, Australia (CAF), a not-for-profit donor funds management business.  

Mr Yap is also Executive Chairman of GCP Global Pte Ltd, an investment firm that invest in both direct capital markets, bonds, real estate, commodities, foreign exchange and builds businesses. Mr Yap appears regularly for the TV media like Channel News Asia and Bloomberg and radio channels like FM93.8 for their various investment programs.

Previously Mr Yap has also lectured at renowned government institutions like the SEASEN Course for the Monetary Authority of Singapore and at AsianDevelopment Bank. Mr Yap has also lectured at financial institutions like the Stock Exchange of SingaporeInstitute of Banking and Finance, the Institute of Certified Public Accountants, the Singapore Institute of Management and the Securities Investors Association of Singapore.

In 2010, the venerable Reader's Digest magazine created the Money Savvy column in their magazine, helmed by Mr Yap who writes on all things finance and answers questions from the magazine's subscribers.

Mr Yap presently splits his time between Melbourne, Europe and Singapore.