May 2019 Market Update: Wait-and-See or Buy-the-Dips?
Just when everyone thought the worst was over on the US-China trade war front, President Trump reminded all of us that he is still very much The Donald. On 5th May 2019, he threatened to increase the current 10% tariffs on $200 billion worth of Chinese goods to 25%, and also to impose 25% levies on an additional $325 billion of Chinese goods, after stating that the Chinese reneged on some key areas of agreement in trade talks1 — sending major global indices spiraling.
The S&P500 has since shed 2.6% from its all-time-high of 2,954.13 achieved on 1st May while the Shanghai Composite Index (SSE) plunged by 8.3% since the renewed tariff threat broke. Other markets have not been spared either with the Nikkei, STI & FTSE100 falling 4.1%, 3.8% and 2.0% respectively2.
A Not So Unexpected Buying Opportunity?
While earlier reports on the trade front had been mostly positive, we did caution in our last update that there could be a possible escalation in tariffs, which could send ripple effects to the markets. Given the turn of events, analysts still expect the possibility of a deal but the risks have risen and it could take longer than expected for an agreement to be reached1. On the contrary, however, the current stock slide is also a trigger for bargain hunters to start loading up and buying on dips, given that the S&P500 has only fallen by 1% or more only three times this year4.
Strong US Economy - No Cause For Rate Movement
In the latest Federal Open Market Committee (FOMC) meeting on May 1st 2019, Federal Reserve Chairman Jerome Powell said the United States economy remained strong, and his outlook on the US economy for the rest of the year is positive and healthy, with inflation falling below the committee's 2 percent target. With that, he gave no indication of a rate cut or a hike at this moment and suggested that the current interest rate range of 2.25 - 2.5% is appropriate.5
Other Markets to Watch
China —
Factory activity in China expanded for a second straight month in April but at a much slower pace than expected, suggesting that the economy is still struggling for traction despite Beijing's support measures. Despite the disappointing factory readings, analysts say that growth-boosting measures are starting to bear fruit, with China's industrial firms reporting higher earnings in March after four months of contraction. China's economy also grew at a steady pace of 6.4% in the first quarter, defying expectations of a further slowdown6.
The SSE is up 15.68% year-to-date.
Europe —
The European Commission downgraded its GDP growth forecast for the 28-nation bloc for 2019 from 1.9% to 1.4% and warned that the threat of a full-blown trade war between US and China, along with Brexit uncertainty, are posing mounting risks to the EU economy.7
The MSCI Europe is up 9.16% year-to-date.
Thailand —
After more than six weeks and plenty of political drama since Thais voted in a landmark election on 24th March 2019, Thailand is expected to keep military junta leader Prayut Chan-o-cha, who led a 2014 coup, in office as prime minister. His party is expected to be joined by other smaller parties that are not affiliated with either the pro-army or pro-Thaksin parties8.
The SET50 Index is up 4.6% year-to-date.
As always, the golden rule is to stay invested and diversified instead of timing the markets.
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2. Data from https:\\sg.finance.yahoo.com(accurate as of 09.05.2019)
3. https://www.cnbc.com/2019/05/06/goldman-sachs-on-trumps-threat-of-trade-tariff-on-china.html
4. https://www.wsj.com/articles/buy-the-dip-stalls-as-sidelined-investors-hunt-for-bargains-11557232891
5. https://www.nytimes.com/2019/05/01/business/fed-leaves-rates-unchanged.html
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