I appeared on Channel News Asia again this morning at 6:20am SGT, via Skype. My questions and my responses in the form of brief notes are below:
Q1. Oil falls below US$30 a barrel. Where will the new-year rout end?
There continues to be a range of factors in oil’s slide so far, with a weakening China, too much supply (and no signs of restraining production), falling stocks and a strong US dollar.
One of these factors has to change for the oil price to reverse. Most of these factors are expected to remain for the foreseeable future so the oil price is likely to suffer as a result.
We currently have an abundance of short positions in US crude therefore overwhelming sentiment that oil will continue to fall.
I have seen forecasts of $15 and $10 so we could easily see it fall further. I don’t think it would last down there too long though.
Q2. Do you expect more turmoil in global markets this quarter?
Yes for the foreseeable future. We are seeing increased volatility in equity markets and some analysts predicting a horrible 2016 for stocks. Of course, these comments don’t help.
If you think of the previous factors like China’s economy and the current trading activities on their markets, this doesn’t fill other markets with confidence. One of the roles of government regulators is to instill confidence in financial markets and systems and until there is a clearer plan for tackling the present issues, I think the turmoil will remain for a little while.
Q3. Australia’s benchmark index closed at a fresh two-and-a-half year low yesterday. Will we see more losses today?
Maybe a little. The SPI futures contract is little changed and we do have a positive lead from the US with a triple digit return on the Dow and the NASDAQ ending an 8 day losing streak.
The ASX200 index is currently trading at a key support level right around 4900 which has propped up the index very well in the last four months. Previously we have seen it return to around 5350 and 5400 however there will be concerns that there is enough bullishness remaining to push it back to those levels.
Q4. Australia’s 4 major banks stocks are down almost 9% on average so far in 2016. Is now the time to go bargain hunting?
For some people it is definitely an opportunity for them to buy into very solid, profit making large companies at significantly reduced prices from 12 months ago. With the 4 major banks, you have profit making machines all consistently making billions of dollars every year.
This presents an opportunity for solid dividend yields and there will be plenty eyeing off the major banks at these levels whilst others will be waiting for slightly lower levels.
Q5. Investors are eyeing Australia’s quarterly earnings season. Will earnings deliver?
I think there will be a mixed bag however there is one major factor likely to boost the earnings season – the Australian dollar. 12 months ago the A$ was above 80 US cents and above 90 US cents only a few months before that.
For the last couple of years the RBA have been shouting their desire for a weaker currency in order for Australia to remain competitive. They have it now with the A$ lucky to be holding on to 70 US cents.
The depreciating local currency will be starting to flow on to corporate Australia and I think this will start to show in earnings.
One exception will be energy companies who are struggling with the very low oil price.
Q6. The Australian dollar is down 4% so far this year against the US dollar. Could China’s slowing economy further pressure the Aussie?
No doubt. I think there are a few things conspiring against the local currency presently. You have China, their economic outlook and the way they are presently managing their local currency. Weaker commodity prices if placing selling pressure as well.
Then you have the divergent paths of the Fed and RBA moving in opposite directions.