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.
No comments:
Post a Comment