Market Outlook for 2011

We went through a topsy turvy year of 2010. The first half of the year appeared to continue the gloom of 2009 where there was much speculation of a double dip recession happening in US. There was sudden news about Dubai economy nearly falling apart. Europe was not spared the rod either with Portugal, Ireland, Greece and Spain dragging the Eurozone into credit crisis. In the second part of the year, things appeared to look better with better employment figures and improving home prices in the US. What's more, the Barrack Obama administration, inspired by its first stimulus package during the global depression in 2008, decided to further boost its slow moving economy by injecting another US$900 billion (dubbed QE2), to buy up treasury bonds. The immediate reaction to that was the euphoria felt by stock markets in the world. On the other side of the world, is China, still enjoying an ever red hot economy. The whole of East Asia was enjoying the spillover effects from China. Global investors, attracted by the turbocharged economy of Asia, started pouring hot money from the US into the region.

In Singapore for 2010, we have seen phenomenal economic growth of 14.7%, a figure not seen since for the last 20 years. We have also seen an unstoppable rise in property prices, passed the last peak in 2007. So what lies ahead for us in 2011?

If you have been following news and analysts' forcasts, most are still bullish about the world economy. The IMF forecasts that the world economy would grow at 4.3% for 2011 compared to 4.2% for 2010. Although most are painting a brighter picture, they are putting words of caution with the Eurozone crisis still hovering and US still struggling to pull itself out of its stagnating economy.

Inflation will be the hottest topic for the year while crude prices are expected to reach the high of US$100 per barrel, a record breached in 2007. Signs of these have already shown up before 2010 came to a closure. China, has already taken measures to increase interest rates to curb rising prices of its commodities. My Hong Kong friend cited that in recent months, mainland chinese are swarming into the territories to buy up daily necessities like fruits, vegetables and diapers with their appreciating Yuan against HK dollars. For those car owners in Singapore, you would have experienced at least 3 times of petrol price hike in the last 2 months.

How about the red hot property in Singapore? It has surpassed the previous peak in 2007. The Singapore goverment has already put in several measures to weed out speculations. With still gravity defying property prices, the government is expected to come in soon again to further dampen the speculation mood. Latest index has shown that HDB prices are still on the rise, while mass market condos are easing. Landed houses and high-end apartments have just started its rise. The government has reiterated that it wants an affordable home to all Singaporeans. It has the utmost duty to moderate home prices and while allowing them to beat inflation.

As an investor, I update myself with news, check on stock market behaviour and network with industry players to be aware of what is going on around.




Let us take a simple view of the Straits Times Index (STI) performance over 2010 in order to forecast a 2011 behaviour. Refer to the topmost chart seen above. This is the STI performance between June and Dec 2010. If we draw 2 parallel blue lines to coincide with most highs and lows, they look clearly in an ascending pattern. This is what Chartists call an uptrend. If you refer to the end of the line (highlighted by the blue eclipse) which shows a downward direction, it is still not at a dangerous low. A dangerous low will be when it is crossing the lower parallel line. A 2011 market will be expected to be choppy. If the STI line remains within the window of the parallel lines, it would then be a healthy uptrend sign.

Chartists believe that market is always the first to digest information and reacts immediately to it. Chart patterns do not behave randomly but to some specific patterns that can be plotted out. However, as retail investors like us, although it can help us to forecast the future, we should not be too engrossed in only one camp of thought. We should open our eyes and ears to look for other indicators.

In my point of view, the 2011 will await signals on how US will help itself recover from recession and how the Eurozone crisis will unfold. The market will continue its 2010 behaviour when it was very sensitive to any grim news. China economy will also be closely tracked for any changes from impact of its policy change.

As for the Singapore property outlook, it is rather certain that the government is coming in with more measures to cool down the sector, as it has mentioned in its previous move. However, it certainly does not intend to kill the market. It has to moderate the growth to beat inflation and yet cannot allow speculations to create a property bubble, like what happened in the US during the sub-prime crisis. Too much hot money has been pouring into Asia from new found wealth around the region. With new immigrants also swarming into Singapore, the government is certainly right to regulate on property as it is one of the core investment engines for investors. But do remember that the General Elections is drawing near and the government cannot do absurd measures to its voters' ire. It has to ensure the economy grows healthily and at a moderate pace, get a mandate from its election win and then go back to work as usual.

In my view, the property, although has formed a new high, is not going down anytime soon. Rather the government is putting in measures to prevent it from spiking further up. If you look at the previous troughs in 1997, 2003 and 2008, they coincided with global economic downturns. If the world economy does not meet its nemesis in the few years ahead, the Singapore property is unlikely to see another slum. In fact, we will meet more new highs before we see the next global recession. This phenomenom will be attributed to the ongoing new money and new immigrants we are witnessing today.