Predicting the Next Few Months

I am going to stick my neck out and try to predict what is likely to happen to the financial markets in the next few months.

Firstly, the US presidential elections. Given the many twists and turns in this “exciting” campaign so far, Clinton should win. Trump’s team had a small boost last Friday but his whining is starting to look stale. His exit strategy will be to blame everyone but himself. Will the GOP do a self-reflection of itself after this and try to be a stronger and better party? Not likely as there are still too many populist politicians in their midst. Trumpism still has some mileage to go. Trump will use this extremism surge to his business advantage while keeping everyone guessing of his intentions into the next elections in 2020. He wouldn’t want to run to be the new leader of RNC anytime soon – too much work and too little financial rewards.

The US Fed will hike interest rates in Dec. Economic numbers are improving and the last hike was a year ago in Dec 2015. It is expected that rate hikes going forward will be slow and steady. Since the GFC in 2008, we have had slow growth for 8 years. An aggressive rate hike strategy is not in the interest of the Fed.

Given that America is the only country that had hike rates and will do so next month, the US dollar will strengthen further against most currencies. This in turn will lead to a weak equity market environment, where revenue numbers have been shrinking across the board. This will be a good opportunity to pick up stocks that has a good track record of stable dividends (eg. REITs, Blue Chips) and can weather a few more years of a low interest rate environment.

Markets may be more volatile into year end. It is mainly due to most banks withdrawing from market making functions and trying to prepare for more Basel 3 capital restrictions. We will see Lehman like moments in the coming months and it is likely that they will be European banks. CS and DB are still struggling big time, can you imagine what the 2nd and 3rd tier ones are going through? China seems to have stabilised and its well formulated plans to spur growth internally via urbanisation is gaining momentum.

I see more of the same slow growth into Q1 of 2017. Developed countries will still have more of the same while Asia is slowing building up a sustainable base for long term growth.China and Japan are actively courting India, ASEAN and Indochina, helping to kick start many multi-billion infrastructure projects that will also benefit their countries’ MNCs.