A slightly different view of the stock market in 2011

Richard Band asked everyone to buy stocks in his mass emails in March 2009, and of course, he was spot on (but I regret now that I didn't follow his advice then). I googled for reviews on his stock recommendation newsletters, and the majority were approving of his performance. He has written on his predictions for 2011. It is interesting to note that whilst many others are bullish on emerging markets including China, he has turned very negative on China. Also, while others are bearish on the dollar, he is very bullish on the dollar.

1. The S&P 500 and Dow will breeze past this year's 9%+ performance in 2011.

2. Obama and the Republican Congress will shove aside their differences and work together in the New Year. Good news for investors.

3. The Dollar Will Rebound

4. Look for Serious Cracks in the China "Miracle"

5. Brazil & India Will Be Red-Hot

6. Gold, Silver & Oil Will Hit New Multiyear Highs

7. Home Sales Will Bounce Back

Caveat Emptor.

Analysts' picks for 2011

A strategy of selective buying is recommended in a mature year of the bull market in 2011. Some analysts reveal their buying lists:

Credit Suisse: Kep Corp ($12.10), SembMar ($5.50).
Wilmar ($7.35)

Kim Eng: Noble ($2.95), Olam ($3.88), Kepland ($5.60)

Citi: DBS ($15.90)

Views from various analysts on stock market performance in 2011

These views are gathered from an article in The Edge, after interviews with Angus Tulloch (First Inv), Bob Doll (Blackrock), Frederic Lamotte (Credit Agricole), Lim Say Boon (DBS Pte Banking), Mark Mobius (Templeton), Tan Teng Boo (Capital Dynamics) and Xavier Baraton (HSBC Global Asset Mgt).

1. Bull run to continue
Bull run is not over, as markets have not reached the euphoric stage. However, there is an increased need to practise stock selection, and also to pay attention to valuations.

My opinion: Bull run will remain, at least till middle 2011.

2. Emerging markets remain the place to be
Fund flows into emerging markets to continue, but there is a case for developed countries, especially those with operations in emerging economies. However, Tulloch is not too excited on China, citing further interest rate increases needed than market anticipates. He is negative on Chinese banks (oops, China Construction Bank is in my portfolio), as he believes deposit rates will rise more than lending rates, is squeezing margins). Tan(a reputed contrarian who correctly predicted a bull market back in 2009)is however, more optimistic on China. In fact, he sees a recovery in the Chinese stock market next year as valuations look attractive and there are just too many China bashers.

My opinion: The US may have more room to recover, but STI is still the place I am most comfortable investing in, and it will not change in 2011. I just have to pick the right sectors.


3. Gold and commodities price to continue to rise. Emerging market currencies to rise against dollar.

My opinion: My stance is still to long gold and the commodities companies in Singapore.


4. Some events that may derail the stock market recovery
These include the euro soverign debt, Iran, N. Korea, investor concerns with governments running out of stimulus bullets, hard landing in China, deflation and of course, finally an asset bubble that will eventually burst. But, no one believes that the bubble will burst in 2011, yet.

My opinion: I am optimistic, but cautiously so. Valuations are not exactly cheap now, and I will never stake everything on stocks. Especially in 2011, the 3rd year of the bull run that started in early 2009.

If the last bear has turned positive, is it time to be weary?

Marc Faber, the last bear, has stated that he does not foresee a double dip recession. This is definitely positive. But does that mean that stock prices are going to fly off the window from here on?

Remember, the markets have rallied hard from the low of March 2009. Our local STI, for example, has rallied by as much as 120% since. Will the market continue to go up in a straight line? Well, someone told me that a bull market can last anything from 2.5 to 5 years. Going by the most conservative measure, the earliest the bull market can peak is by the middle of 2011. This leaves us with just 6 months to prepare sufficiently for an exit from our long positions!

What can derail the stock market? For one, stocks are getting expensive in relation to their dividend yield and price/earnings multiples. And I read in the headlines today that inflation will be the key threat in 2011. With inflation, comes rising interest rates, and although rising rates and stock prices can rise simultaneously, after a while, they begin to go in different directions. And I expect this to happen sometime in the second half of 2011.

Whilst I am positive on selective sectors in the first part of 2011 such as gaming, plantation and oil (I am invested in these sectors), I will avoid property due to likelihood of increase in interest rates.

Even Marc Faber does not think there will be a double dip

Dr Doom Marc Faber has finally admitted that he does not expect a double dip recession. Now, this is a major major statement coming from the bear of bears. This is what he wrote in his blog: "I don`t think it will double dip for now, we are living in a global economy today and you have parts of the world that are relatively weak, like the US and Europe, although from the lows they have recovered somewhat. Than you have other parts of the world that are very strong, emerging economies, especially China and India. The big question is what will happen to that part of the world."

Three cheers to the economic economy.

Wilmar's woes continue

My decision to cut Wilmar off from my portfolio should prove to be right, given that the stock is now off more than 5% from my purchase price - only thing is, I have not managed to dispose of it (at the price I want), and am now "holding the bomb".

Here is what triggers the massive sell-off in its shares: Wilmar (F34.SG) is down 1.5% at a 6-month low of S$5.83 on concerns the group may be losing its focus as it ventures into property development in China with Kerry Properties (0683.HK) and Shangri-la Asia (0069.HK). OSK, which has a Buy call with a S$7.35 target, says while the project in Liaoning''s Yingkou City would be profitable given the expertise of Wilmar's partners, "this could mark the start of Wilmar''s loss of business focus and corporate discipline."

Citigroup, which has a Hold call and a S$6.76 target, expects Wilmar to bid for more sites in China; "we agree that Wilmar can leverage on its existing contacts and network, but we are not entirely comfortable with the fact that they are expanding beyond the consumer food-related business." The companies will jointly develop residential and commercial properties and a hotel in Yingkou. Near-term support is at S$5.60 (June 30 low).

In a separate report, Phillip Securities has highlighted that " most of the negative developments have already been prices in to its share price, and moreover we do not expect price control to be long drawn. Growth story of WIL still intact, and we see buying opportunity in current price and upgrade our recommendation to a Buy while keeping our target price of S$7.08.

I retain my stance of looking for the best opportunity to get rid of this stock from my portfolio. This is more to do with my wishing to lighten my portfolio than about Wilmar's foray into property. Between Wilmar and Olam, Olam is the stock I prefer in my portfolio.

This may not occur over the next few days, but I believe a temporary reversal in the price of Wilmar could result in an opportunity to exit at a more desirable price.

Goldman Sach's predictions for 2011

Goldman Sachs is the bank that survived the financial crisis very well, so it is good to pay attention when they just released their surprisingly bullish 2011 Forecast.

In it, the banking giant predicts that oil futures will climb to $105 a barrel and that the S&P 500 will continue its uptrend a further 25% next year.

Not surprisingly, Goldman strongly recommended investing in the U.S. large cap commercial banking sector.

But perhaps most shocking is Goldman's prediction that gold prices will climb to $1,690 an ounce by the end of 2011 - and that prices will continue to rise to $1,750 sometime in 2012.

That's an additional 25% upside for the yellow metal in a decade that's already seen 266% gains in the price of gold.

I have welcome Noble back into my portfolio

As I believe that equity prices should recover for the Jan rally, I have made further purchases in Noble and Olam today. This is despite the stock market continuing to weaken. However, I will be looking to dispose Wilmar, as its immediate prospects are not eactly exciting. I should have researched the stock more thoroughly before purchasing it. Therefore, my portfolio going into 2011 will be:


Singapore counters
Genting
Olam
Noble
STX OSV

HK counter
China Construction Bank

US counter
Bank of America

Commodity
SPDR Gold

I will not be looking to add any more positions, unless there is drastic declines in the market.

Will emerging markets falter soon?

Many analysts are now saying that emerging markets are the place to be in. However, this is exactly why it is so worrying to be investing in emerging markets now - for the sole reason that there is a lack of bears.

Individual investors are pouring money into emerging market stocks at the fastest pace since 2007. The last time investors were this bullish - the MSCI Emerging Markets Index sank 11%. The index now trades at 2 times net assets, within 4% of the most expensive level on record versus MSCI World Index. Non-conformist fund managers such as Harris Associates' David Herro and Jack Ablin are busily reducing their exposure to these markets. They are instead turning to US companies with strong exposure to emerging markets.

The implication: A more meaningful correction for Asian markets may be round the corner. In fact, the Hang Seng is now in the process of breaking down from its head and shoulders pattern, a bearish sign.

But I am still a believer in the Asian growth story, and will be keeping cash in reserves to take advantage of just such an opportunity, if emerging maket stocks falter.

Dow may hit new record in 2011?

With the Dow just 23 per cent away from its all-time high, it is not surprising if it hits a new record next year, even though many analysts do not expect it to be so soon. This article explains why. But after that, stocks may not stay that high for long.

Global stocks to rally as much as 15% in 2011?

Just like Brown, Udo Frank is equally optimistic on stocks next year, predicting stocks to rally as much as 15 percent, outperforming bonds and precious metals. Frank is chief executive officer of RCM Capital Management LLC.

In a Bloomberg interview on Dec 1, Udo Frank said that "2011 will be a positive year for the global economy and equities as an asset class," Frank predicts "balanced" gains for equities in the U.S., Europe and the emerging markets as world economic growth quickens from this year's levels and corporate earnings grow at a "double-digit" pace. Stocks will also outperform other asset classes as investors turn away from gold and other precious metals after they surged to record highs this year, he said.

So, should I sell my gold? Nah, I will wait till $2,000.

Rig Builders, Plantations and Tourism stocks are DBS Vickers' picks for Jan rally

Janice Chua, senior vice-president and head of research at DBS Vickers has swept numerous awards for picking the right stocks and making accurate forecasts. So, I listen with great intent when she announces her buy list for the Jan 2011 rally. She will be buying rig builders, plantations and tourism related stocks. Chua sees the current Korean tension as temporary, and is recommending buying stocks during this current market lull.

She recommends rig builders because she sees the upward cycle for newbuild jack-up rigs continuing, as oil majors are spending again in view of high oil price. Stocks: Keppel Corp and SembMar in that order. Plantation stocks are also recommended because "we are entering into an inflationary boom cycle and a period of high liquidity means that commodities like palm oil willl be going up. Stocks: Indofood, First, Noble and Olam. Finally, go for tourism because there will be a rise in holidaymakers during December and new junkets expected next year. Stocks: Genting, CDL Hospitality, SIA and UOL.

I have instituted fresh positions

The much awaited correction either have not arrived, or will not arrive. Anyway, since stocks have refused to budge from their support levels, but instead reversing direction, I have decided to replenish my portfolio with the following stocks:

China Construction Bank
Genting
Wilmar
STX OSV

I also have Bank of America, which is now becoming a "long-term investment". My target is to hold on to these stocks till the next peak in March/ April or when my price target is reached. If the market falls further before then, I will continue to load more shares.

Graham's quick checklist

Benjamin Graham, the mentor of Warren Buffet, has his wealth severely depleted during the Great Depression. Thereafter, he came up with a checklist for selecting stocks. Sad to say, performing these checks will not be able to yield us any hidden gems on the SGX today. The criteria:

1. Market Leader (at least 25% share)
2. Current Ratio > 2
3. Long term debt < Net Current Assets
4. Debt to equity ratio < 0.5
5. 10 years profits
6. EPS grow by 1/3 in 10 yrs
7*. 20 yrs of dividends
8*. av last 3 yrs PER < 15
9*. P/B ratio < 1.5

The last 3 criteria are deemed especially relevant by Mr Ooi Kok Wah, MRR Consulting.

Outlook for 2011

If I believe in Warren Buffett, if I believe in John Paulson, then I will believe that the economy will not tank next year, that is, there will no double dip recession. I happen to believe in them.

According to Allan Brown, CIO of Schroeders, we could easily see double-digit returns for equity markets next year. This is due to price-earnings-multiple expansion and moderate earnings growth. He has 36 years of investment experience, and he thinks that there will be no double dip recession.

He is most bullish on emerging markets, and is of the view that equities in these markets are far from a "bubble". Yes, they may be expensive compared to their peers in Europe and US, but that is justified.

He also feels that interest rate hikes will be gradual, and although equity markets could respond negatively for a few months afterwards, they should get back to normal. Interest rate rise is good as it reins in inflation. Inflation is bad for equities. High inflation leads to PER contraction, and low inflation causes high PER.

Brown is most positive on technology stocks in 2011, as a beneficiary of the ongoing capital spending cycle. He is also bullish on agricultural commodities and gold.

The true value of BAC

The price of BAC has kept dropping since the day I bought it. In fact, I was very unlucky to have bought it just before it announced its third quarter losses. I have been holding the stock for almost 6 months now, and am staring at a nearly 30% loss. So, do I cut loss? Never. Because I believe in the American Recovery.

An article taken from the Street:
Bank of America had a noisy third quarter, as the company posted a net loss of $7.3 billion, or 77 cents a share, resulting from a non-cash goodwill impairment charge of $10.4 billion at its FIA Card Services subsidiary. This placed a drag on third-quarter earnings for the entire banking sector according to the Federal Deposit Insurance Corp., but excluding the goodwill charge - which didn't eat into investor capital - the company would have earned $3.1 billion, or 27 cents a share, declining slightly from the previous quarter. Bank of America's shares were trading for 0.9 times tangible book value as of Tuesday's market close, which is a very low level for a company with such a national presence, including Merrill Lynch and Countrywide's mortgage business. Surely the nation's largest bank, which will have tremendous earnings power when the economic recovery eventually picks up steam, is worth more than its liquidation value. Analysts concur, with 17 out of 25 analysts covering the company rating its shares a buy, while the other analysts all have hold ratings. Based on the median price target of $18 among analysts polled by Thomson Reuters, the shares have 62% upside potential from Tuesday's closing price of $11.09. However, most of the analyst targets are for 12 months, which really isn't that long-term an outlook. An investor confident in the eventual economic recovery who is willing to go in for several years, might be in for a fat triple-digit return.