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Good morning,
Markets are called to open lower this morning. This is what's happening in the markets today:
The market is in waiting mode. Investors are waiting to see what governments are going to do next. The next big day for the markets is next Friday when the Fed has its meeting and will announce whether it will carry out further expansionary monetary policy or not. In my opinion the market will remain disappointed and we won't see any form of easing before the November elections. They are already hinting that the GDP figure for the US out tomorrow will be better than expected and this would reduce the probability of further easing in the US.
The EURUSD settled around the $1.2486 level, though many analysts are of the view that it is just a matter of time before we start seeing strength in the Dollar again. When the Dollar starts to strengthen, the Dollar bears start saying that the US has a big debt problem and that the EURUSD at the $1.25 level is not sustainable. Reading this statement and assuming ceteris paribus, it does make sense. However, the US is not in a vacuum and there are other countries which are being effected by this economic slowdown. The situation in Europe is much worse than that in the US and if you compare the US to Europe, it is evident that there are much more arguments why the Dollar should rally against the Euro than vis-versa. UBS, Deutsche Bank, Citi are amongst the analysts that believe that the rally we have seen in the Euro will be short lived. Their reasons are in line with our house view and thus we are of the opinion that portfolios should continue holding on the Dollars at this point in time. Of course this opinion can change as we see developments coming out from different economies. It is just a matter of time before we see the market turn its focus off of Europe and start worrying about the massive debt burden in the US. But that the time isn't now and for the short term at least, the Dollar should continue benefitting from the negative news coming out of Europe. Obviously if the Fed has to come up with some form of easing on Friday we would see the Euro strengthen. However, it is unlikely that we get this annoucement. It is more likely that we see further strength in the USD.
Bloomberg's 'chart of the day' yesterday showed the performance of emerging markets ETFs vis-a-vis expansionary monetary policy in the US. In fact the emerging market index did well in 2009 when we got QE1 in the US. We saw the index turn negative in the firsts quarter of 2010 when there was no easing in the US and turn positive again for rest of the year when the US Fed pumped money into the economy. We saw the index turn negative once again in mid 2011 to date as no easing was announced by the Fed. My opinion is to monitor the iShares MSCI Emerging Markets ETF and build positions before the end of the year. The index is bound to perform well in 2013 using heuristics and assuming that the performance of the index in the past will be effect the same by similar events in the future. Apart from this, holding an emerging markets ETF in a portfolio provides good diversification plus exposure to companies which cannot be purchased individually because of restrictions and limitations of investing in many emerging markets.
Stock to watch: Samsung – Is it time to BUY on weakness?
It is my opinion that investors (apart from being overweight Apple) should take this opportunity of a dip in the share price of Samsung to build positions. The effect of the ban on Samsung’s sales will be negligible because its newest smartphones aren’t on Apple’s list of devices, which will account for less than 1.4% of the Korean company’s profits next year, said Mark Newman, an analyst at Sanford C. Bernstein who used to work at Samsung. The impact would be 6.3% if Apple manages to broaden a ban to newer devices and block 80% of all Samsung phones, he said. However, Samsung’s latest Galaxy S III wasn’t targeted by Apple in the trial and isn’t on the proposed sales ban list submitted yesterday. The model’s exclusion is a positive for Samsung.
For further information on Samsung or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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