《Market Analysis》
  • The Hope of Spring
    2016-05-10 19:47:48
Author: Dr. Peter So, CCB International Securities Ltd. (Research Division)

Global Macro-economic Forecast
With China's deregulation of the Yuan, financial regulation and sales recovery in properties going up, future credit will enter the rising cycle and pushing inflation upward.  We expected that China allow the hedge capital outflow for three times in 2016.  

The United States as a major economy league, economic growth will be quickly reduced from 2.4% in 2015 to 2.1% this year and will gradually grow up to 2.3% in 2017.  The other hand, its inflation rate will be significantly raised from 0.1% in 2015 to 2.2% in 2017.  In the Euro-zone, inflation predicted to be much higher than its economic growth.

The Dollar: Strong? Weak?
The United States Dollar(USD) growing strong since 2014, but is now entering a period of volatility.  The dollar will become the safe havens over the angst of a slowing global economy.  The exchange rate of dollars will push up the cost of business operations, financial and investment risks, which will affect the performance of commodities prices and the stock of the emerging markets.  In order to reduce the impact of low exchange rate and the unstable commodities prices, enterprises need to increase the diversification of the hedging instruments.  The decline in emerging markets will provide a number of acquisition and long-term investment opportunities. 

The Opportunities Created by Difference Business Cycle and Commodity Trend
Global investment environment begin to enter a period of falling.  Before that period, the captial expenditure of mining and oil and gas industry were lack of growth, yield is not enough to cope with the demand in China and the emerging markets.  It may be a great time to recruit commodities due to abundant global liquidity and commodities prices bottomed out and rebounded.  The oversold and undervalued emerging markets stocks caused capital funds to rebound, however, the Global economic growth continues to slow down.  We predicted a decline in investment in the second half of 2017.  The outflow of funds in emerging markets and the decline of commodities prices cause investors to panic.  Dollar or part of commodities such as gold will become safe-haven asset again. 

How to Grasp the Opportunities? 
Enterprises can use some optimization strategies in the down cycle to diversify business risks, such as, implement corporate bonds to increase cash assets and wait for opportunities of the merger and acquisition, buy in company shares in low cost, reorganization of assets to reduce the interest rate and exchange rate, or selling the high valuation of the assets and equity carve-out . In the period of recession, the market atmosphere may be worse than the financial crisis in 2008 because the financial assets will fall sharply when the interest rate dropped.  The enterprise can use their cash flow to purchase financial assets (such as bonds or shares) or mergers and acquisitions, especially in the emerging markets in the right time.