GUEST POST : Zico For Stocks Column – Equity strategy in the face of the fiscal cliff
So what now…
With the US elections out of the way, investors’ attention have again turned to the fiscal cliff – the over $600 billion in tax and spending provisions set to change on January 1, 2013. The issue of the fiscal cliff has in recent months moved to the top of investors’ concerns ahead of Europe’s debt crisis, the slow economic recovery and China’s slowdown.
As it is, it looks like nothing is going to happen on the fiscal cliff until November 26. Until then, expect posturing and public interactions so the parties can determine the lay of the land. It is likely that the solution would be a plan to buy time, or some sort of fiscal deal up front. This probably won’t happen until after Christmas. As usual, it will cut very close to the wire.
As it stands, there is a case for the outlook for US economic growth to be less optimistic. A number of President Obama’s policies, including the Affordable Care Act and its associated taxes, an emphasis on regulation, and likely tax increases on capital gains and dividends, are likely to impede economic growth in the US. A continuation of anti-business rhetoric is also likely to hinder risk-taking by businesses and corporations are unlikely to repatriate more of their overseas earnings. Other uncertainties weighing on corporate decision-making include the many regulations authorized under the Dodd-Frank banking reform bill. Those unknowns continue to hang over much of the banking industry.
More generally, it remains unclear what President Obama’s second-term agenda will be. Hopefully the narrower mandate will not be interpreted to drive through the president’s election rhetoric.
These all have made the US stock markets a bit nervous. The stock markets will no doubt be volatile in the next two months. And the regional stock markets have not been unaffected. But that is not necessarily a “bad” thing. It allows us stock investors to enter into stocks that we like at favorable prices.
From a regional perspective, many of the smaller stock markets IN ASEAN have done very well. I think the opportunities are further north – it’s time to add to Hong Kong and China. The completion of the leadership transition in China is a positive for investors. It allows them to focus back on the economy, and there are green shoots for optimism. Sectors like life insurers and selected stocks in the technology and consumer sectors are favored.
In such an environment, stock picking the key.