Zico's Recap For 1Q15 : A pause to look at what's in the bag

Zico has been noticeably absent for a while and I suspected that was because he was too busy making money. It looks like I was right.


The big story in the first quarter was the rally in the US dollar, surging 9%. This meant that the returns in local currencies could be very different when measured in US dollar terms. It was also very much a stock picker’s market where the dispersion in performance of sectors and stocks was very wide. The best illustration of this was in the US, between the biotechnology sector vs the oil stocks.

Looking at the performance of the global stock markets, the elephant in the room must surely be the European markets, which had their best quarterly returns (in euro terms) since 1998. Benchmark stock indexes in key markets like Germany and Portugal were up more than 20%.

The catalyst for the rally was quantitative easing European-style. This is probably one occasion where investing passively in a European stock ETF worked best. At the same time the euro probably had one of the worst quarters, in terms of weakness relative to other major currencies. The Euro Stoxx 50 index in dollar terms is only up by less than 5 per cent year-to-date.

What about the US?

In index terms it was more or less flat. The S&P 500 closed up 0.4 per cent over the previous three months, its ninth successive quarterly rise. That however masked some the sharp volatility witnessed in the quarter. Nervousness over the timing and magnitude of interest rate was a factor. But with a rate increase so well “telecast” and the magnitude not expected to be large, the impact on US stocks are not likely to be as bad as some are expecting.

It was and still is right to be in US stocks especially if you are a Singapore dollar based investor. Apple the largest US stock by market cap finally got into the Dow, and made a multi-year high slightly north of 130. And I did take some profits at the 130 level. The stock closed up 12.8% on the quarter. And in Singapore dollar terms it was a good quarter. Going forward I would still like to own Apple and there will probably be bouts of price weakness to allow me to re-enter the stock. Facebook made a multi-year high in the quarter, and others like Amazon closed nearly 20% higher. So stock picking still reigns, and one must also to prepare to lock in profits.

When translated back to US dollars the best three stock markets in the first quarter were Russia, China and Japan.

The Chinese stock markets were the favoured at the start of the year. Instead, slowing growth and falling inflation led to expectations for further easing action from the PBOC which in turn underpin the rally in the Chinese stock markets. The Shanghai Composite closed the quarter near its seven-year high, with a year-to-date gain of 18.6 per cent. Buying the ETFs that mirrored the CSI300 index was the thing to do. But those brave enough to pick stocks were more than richly rewarded. The insurer China Tai-ping Life (966 HK) was a bit muted, gaining 20%. But Tencent (700  HK) and Kingsoft (3888 HK) were up 31.5% and 49.4% respectively.   https://tradehaven.net/market/zico-files-china-tech-stocks-opportunities-kingsoft-xiaomi/

What would I do with my Chinese stock portfolio? I would stay invested in the same names and perhaps add a few new names like VIP Shop (VIPS US), Ctrip.com (CTRP US) and the H-share ETF (2828 HK). The valuation between the H-shares and the domestic A shares is likely to narrow especially with the announcement last week to allow more domestic funds to enter into the H-shares.

At the same time I think there will be opportunities to take profits in the Chinese stocks in my portfolio, and it’s probably some time this coming quarter.


A Bit About Zico
Zico is our in house equity consultant who is currently a private fund manager with more than a fair share awards in the course of his illustrious career.
Having managed both global and also regional themed equity portfolios, he specialises in stock picking that maximises returns for his various absolute return portfolios.