nexttrade: Times are a-changing

Tuesday, March 24, 2009

Times are a-changing

Last Friday, I've posted a piece on the negative effect on the US Dollar due to the Fed's decision to pump more than USD1 trillion into the economy to help revive the housing market. The plan includes buying up to USD300 billion of long-term government bonds over the next six months.

On further thought, I believe this could be a game changing development. This is because since the Global Financial Crisis started last year, US Dollar ('USD') has acted as a safe haven currency, attracting funds from around the globe. This has caused currency crises in many countries in Eastern Europe and some Asian countries which have heavy foreign currencies borrowing. In addition, it has caused funds managers to sell-off their investment overseas & to park the proceeds in USD assets (mainly, US Treasury bonds). A reversal in the USD uptrend could push funds managers to divest their USD assets (or, take some profit on their portfolio of US Treasury bonds) & invest in their funds in other asset classes, such as commodities, equity markets (domestic or overseas), etc. This could lead to a sustained rally in many Emerging Markets, including Malaysia. I believe it is a good time to take constructive position in our market.

I have appended below the daily charts of KLCI, HSI, N225, FTSE & DJIA. HSI & N225 are now pushing against their 100-day SMA, while the other markets are pushing against their 50-day SMA. DJIA will also benefit from this rally because I believe funds managers' risk-taking appetite could have changed & they are prepared to take on greater risks in order to get a higher return instead of their current meager picking from US Treasury bonds investment. The times are a-changing.