Current global trading opportunities

Current global trading opportunities

Introduction

Global equity markets have had an exceptional couple of months. Regardless of what market, shares have surged amid a return of bullish market sentiment and low price volatility. The reduction in perceived global macro risks such as high European sovereign borrowing costs, slowing global economic growth, deflation, and U.S. fiscal issues have helped boost market sentiment substantially. On top of this, global central banks continue to pump unprecedented amounts of liquidity into financial markets in an effort to boost global growth, lower unemployment, and stave off the threat of deflation. With improved investor sentiment, many major equity markets have broken to fresh multi year highs, with, in particular, the major U.S. stock indices verging on breaking to new all-time highs.

But as U.S. stock indices drift toward all time highs, investor scepticism remains high. Normally, common signs seen near the end of a stock market bubble or rally are often extreme optimism, not scepticism. And the euphoric optimism often associated with the heights of bull markets still remains at large. Instead, we still have many well know market participants and gurus challenging the legitimacy of the global rally in stocks. Scepticism in this environment is a welcome sign for the bulls. It signals not all investors are convinced of the market rally, with such caution often represented by money sitting on the sidelines.

Undoubtedly media commentators, market participants and gurus spruiking the end of the global bull market will eventually be right. For now, however, as long as global central banks continue injecting large amounts of cheap money into the financial system, the bull market still has plenty of support behind it.

Although the Australian market is performing strongly, and may continue to perform well into the short to medium-term, the lack of liquidity in the Australian market makes it difficult to trade. Liquid share markets such as in the United States, United Kingdom, Germany, and Japan are presenting just as good, if not better, trading opportunities. Therefore, as a local investor or trader, you’re potentially missing out on a world of profitable opportunities by being exposed to only Australian shares.

Major stock indices of developed countries have mostly been trading in upward trending bull markets for the past four years now. The Australian market is now over 55% above GFC lows, and verging on reaching its highest level since 2008. Meanwhile, the U.S. benchmark S&P 500 is up over a staggering 120% and on the cusp of hitting all-time highs. And the MSCI World index is now higher by over 100% from its GFC lows. If global indices continue to perform, the trading strategy implemented by the Rivkin Global team is well positioned to profit from future price trends.

As the Rivkin Global strategy profits from price trends, we look to exploit markets in strong up or down trends, with a high probability those trends will continue. At the moment, the greatest and most consistent price trends exist across global equity markets. Therefore, the equity markets Rivkin Global is most interested in at the moment include:

  • United States
  • Great Britain
  • Europe
  • Japan
  • Australia
The United States

Despite concerns over America’s fiscal situation, slow jobs recovery and moderate economic growth, U.S. shares are verging on breaking to all-time highs. Rivkin Global has been following the recovery in the U.S. stock market for the past two years, and continues to seek new trading opportunities there.

Scepticism surrounding the legitimacy of the four year long bull market is lingering. Considering the state of the U.S. economy and that unemployment remains above 7.5%, it is not like the scepticism is unwarranted.

Fuelling the bull market are unprecedented amounts of money being injected into the U.S. financial system by the Federal Reserve. Due to the dual mandate of controlling inflation and unemployment levels, the U.S. Federal Reserve makes policy decisions differently from many other central banks with single mandates. Given U.S. unemployment remains stubbornly elevated above 7.5%, the Federal Reserve board will try and use monetary policy to push unemployment to its target level of 6.5%. This means that it could continue printing $US85 billion per month while keeping interest rates at historic lows until unemployment falls to 6.5%. And with unemployment falling back to 7.9% from 7.8% last week, the slow pace of the jobs recovery could see loose monetary policy continue indefinitely.

Ready to derail stocks, however, are looming fiscal issues like the U.S. debt ceiling and the implementation of automatic spending cuts. So we remain cautious of future market volatility stemming from surprise macro events.

Technically, from a longer-term perspective, the Dow Jones Industrial Average and S&P 500 look bullish, despite verging on breaking to new all time highs. At the individual stock level, there are well over 20 companies with potential bullish trade set-ups. While many may be sceptical of a break to new all time highs, technically however, a break to new highs is more bullish than anything.

With plenty of stocks on our watch list, and with the expectation the longer-term uptrend may continue indefinitely, the Rivkin Global team will continue looking for profitable trading opportunities in U.S. stocks through the first half of 2013. 

Europe

A lowering of sovereign borrowing costs and falling investor risk aversion has seen European stocks rally strongly over the past three months. Many individual names with strong uptrends and upside momentum are currently sitting on the Rivkin Global stock watch list. On the basis sovereign bond yields of indebted periphery euro zone nations remain well down from the dangerous levels seen in 2012 and risk aversion stays low, we anticipate buying momentum across European stocks will likely remain strong in the short to medium-term. Therefore, we’re prepared to take advantage of further potential upside across many European stocks.

Japan

As global central banks continue in the battle to weaken their home currencies, the Bank of Japan recently upped its commitment to reducing the value of the yen by setting an inflation target of 2%.

Further intervention by the Bank of Japan has seen the Japanese yen weaken over 20%, subsequently seeing many stocks rocket higher as a significantly weaker yen helps to improve their bottom line, especially for exporters.

With a shift in attitude by Japanese politicians and central bankers toward economic policy, there could be a sustained catalyst behind further weakness in the yen, and subsequent strength in stocks. And as many major stock indices rally toward new all time highs, the Nikkei 225 definitely has some catching up to do, given it is still 37% below its peak set back in 2007.

On the basis the yen sees further weakness against the US dollar, we anticipate further upside in Japanese stocks. So the Rivkin Global team will continue looking for opportunities in this market for the foreseeable future.

Australia

The rotation of capital from cash into high yielding stocks such as the big banks and telecommunications companies has seen the Australian share market perform exceptionally over the past few months, with the ASX 200 index rallying just over 20%. While Rivkin Global did profit from a rotation of risk, we expect many more trading opportunities may present themselves in the near future. If the Reserve Bank of Australia continues cutting interest rates through 2013, seeing the real return on many cash assets fall to increasingly unattractive levels, we expect high levels of demand for high yielding stocks to intensify.

Technically, the ASX 200 Index is looking increasingly bullish as it verges on breaking to new multi-year highs above the key psychological barrier of 5,000 points. 

Conclusion

While global equity markets are seemingly presenting the most trading opportunities at the moment, undoubtedly other opportunities in other asset classes will come about in the near future. If opportunities dry up in one asset class, the Rivkin Global strategy allows us to quickly adapt and seek profitable opportunities in other asset classes like commodities, currencies, and global indices. Therefore, the flexibility of Rivkin Global offers an important edge over traditional buy and hold strategies exposed to just one market. To find out more about gaining exposure to the dynamic and exciting world of global markets, please call us on 02 8302 3600.

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