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Fri12152017

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The Great Rotation–2nd Wave

The “Great Rotation” – the shift into higher-return equities out of low-yielding bonds, is one of the top investment themes of 2013.  The first wave is driven mainly by US private pension funds and retail investors.  The second wave – will be driven by the non-US pension funds such as the Japan and Norway.

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The Great Rotation Story–This Time is Different!

When S&P 500 broke 1,500 on 2013-01-25, the ‘bull’ was attributed to the “Great Rotation” play – people selling bonds and buying equities…it was then found that there wasn’t any “Great Rotation”, monies are still pumping into bonds as well as equities.  However, after the recent sell-down started 2013-05-22 ended 2013-06-25, the “Great Rotation” from bonds to stocks is ‘in’ again.  This time is different - it could be real and the game play might have already started.

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Why 1994 US Bond Crisis Will Not Happen Again

From 1985 till 2009, there were 3 times bond fund generated negative returns:  1994 with lost of 4.7%, 1999 with lost of 1.2% and 2008 with lost of 7.8%.In 1994, US Bond crash.  We know what happened in 2008 – Lehman Brother Saga.  Hence among the three incidents, 1994 bond crisis is the most probable scenario that we could face once again – when the Fed being to taper and eventually hike the interest rate.  Why?  On 1994-02-04, the Fed raised the interest rates unexpectedly and the rate was raised from 6.2% in February to 7.75% in mid-September of 1994, about 155 basics point within 7 months knocking off more than $600 billion off the value of US bonds.  Will history repeat again?

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2Q 2013 Market Review

“Don’t jump ship now. We may have reached an inflection point of low Treasury, mortgage and corporate yields in late April, but this is overdone. Will there be smooth sailing tomorrow? “Red sky at night, sailors delight?” Hardly. Will you be able to replicate annualized returns in bonds and stocks for the past 20–30 years? Hardly. Expect 3–5% for both. But sailors, don’t panic.”  Bill Gross – Bond King.

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Global Sell-Off Jun 2013 – A Buying Opportunity!

Due to ultra-loose global monetary policy, central banks led by the Fed have flooded financial markets with more than $12 tn of extra liquidity since the financial crisis.  Most of these monies are ‘pumped’ into emerging markets as they are seen to be the growth engine of the world, resulting escalating asset pricing.  Since May 22 till Jun 10, MSCI Emerging Market is down 8.4%; MSCI World down 4.45%; MSCI Asia Ex Japan down 7.55%; MSCI Europe down 4.3% and S&P 500 is down merely 2.07%. The three-week sell-off erased $1.9 trillion of global equity value.  The sell-off is not limited to equities, government bonds such as Singapore Bond is also affected by the recent volatilities, pushing its 10-year yields to a 22-month high – its 3.125% note due in September 2022 tumbled to S$110.42 from S$110.98 June 7.  The yield rose 6 basis points or 0.06 percentage point to 1.89%, highest since Aug 2, 2011.

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