Random Macro Analysis For 2014

Messy messy messy

Messy is the word to discuss the world currently. The Arab Spring seems to be just a dream, with many countries turning over to extremism after the coup. Europe seems to be recovering but there still no clear idea on how the Euro should reform. Just when things are getting better, the Ukraine Crisis broke out. It seems we might be heading for another civil war.

Abenomics not working?

Japan is at a very interesting stage. The country is facing huge fiscal issue, having one of the highest debts in the world. A series of finance minister resignation in the last 5 years might have prompted some issue with their fiscal situation. Prime Minister Abe seems to have the perfect solution, spend their way out. However, it is worth noting that Japan has an artificially low interest rate and increasing their money supply might most likely increase their inflation rate which will affect the interest rate. Their current interest payment is around 25% of their total tax revenue. Furthermore, Japan is facing an infamous aging population that seems to be getting worst. Most country can counter this problem with opening their doors to immigrants. But due to the Japanese cultural aversion for immigrants, that means they will have a very hard time increasing their GDP which might affect their tax revenue. If they have decreasing tax revenue problem with an increasing interest rate problem, their only solution might be, to print even more money. And so the cycle begins again. The main question that everyone has at the back of their mind is “When will it stop?” As I mention in the beginning, Japan is at a very interesting stage.

The US has been recovering slowly. Although there has been disruption with the government shutdown and Fed Tapering, it seemed that all these were just distractions. US stocks continued to rally but looking at the US valuation, it might have run ahead of itself.

South East Asia has seen money flowing in from all direction, leading to asset bubbles surfacing across the region. The most notable asset class is real estate. It will be fascinating to monitor how things unfold when the money stop flowing in. However, the question is still “When?”. China is undergoing a major restructuring exercise. Fighting corruption and restructuring their financial system might take some huge effort and time, but given the current valuation of the region, it might seem to be worth the wait. There was once a famous investor who said “Be fearful when others are greedy, and be greedy when others are fearful.”

Value In Action

Having said all that, as value investors, we should not be too caught up with the macro situation. The key is still to just find great companies with great management at great prices, everything else will fall into place.

 

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim doesn’t own shares in any companies mentioned above.

 

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