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Sunday, February 21, 2016

Aboi's Investment Strategy for 2016 - Outlook Added

As of Dec 2015 by EIU

Brief 2016 Economic Outlook
US: Economy that continues to grow moderately. The much anticipated interest rate hike cycle is expected to be conducted at a "gradual pace". I don't think they will raise it up 1% within this year.

China: Multi year rebalancing act has brought growth to a new targeted range of 6.5% a level that is likely to be more sustainable over the long term and down from the double digit growth rates seen prior to the Global Financial Crisis.

Japan and Europe: Bank of Japan to expand its Quantitative and Qualitative Easing in 2016 to try to meet its inflation target of 2%. The cyclical recovery in Europe is expected to take further hold and the central banks of Japan and Europe expected to continue to ease monetary policy to bolster economic growth.

Malaysia: Inflation to edge higher to 3%+. Consumer sentiment is likely to be dampened going forward. Weak ringgit environment is likely to stay for some time, with no immediate catalyst that will strengthen the currency significantly going forward. Various sectors to face headwinds; O&G, plantation, banks, telecommunications and property. Non-oil exports and investments to support growth; e.g. exporters and construction.

Others: Commodity prices and the USD have become increasingly negatively-correlated in recent years, with the recent strength in the USD coinciding with the lowest commodity prices since early-2009. I would caution against mounting expectations of an ever-strengthening USD. Asian and EM currencies are already trading at multi-year lows against the greenback and I think it's already as much as it can go.

How did my Investment Strategy came about then?

Looking forward, expected returns no longer justify an overweight position in equities given that expected returns are not as attractive as before, reducing the expected reward for the amount of risk taken. With my current exposure to equities a neutral allocation to equities vis-à-vis bonds is advocated. 
-> (Add) AmDynamic Bond - Class: Malaysia Bond
-> (Add) Affin Hwang Select Bond - Class: Asia Bond

Reits were battered during the second half of 2015 alongside conventional equities, the decline in their share prices had the effect of pushing up yields. It is worth noting that the majority of the Reits are currently trading near book value, suggesting that downside risks are currently minimal.
-> (Add) Malaysian REIT for high dividend yield play - Class: Malaysia Property

At just 12.4X 2015 earnings, Asian equities remain undervalued at this juncture, and I believe that a recovery in the earnings revisions cycle for Asia ex-Japan equities will be a key catalyst for Asian equity valuations to mean-revert higher. A normalisation to 14.5X PE would see the market deliver a 21% annualised return by end-2017 (or nearly 50% upside on a cumulative basis, including dividends), with the North Asian markets accounting for most of the potential returns.
-> (Add) CIMB Principal PRS Asia Pacific ex Japan Equity Fund - Class: Asia ex Japan Equity

As of 17 December 2015, the FBM Small Cap Index traded at 12.5X, relatively lower as compared to the KLCI Index’s 16.4X. As small cap stocks are known to be more volatile than their large cap counterparts, I would advice caution and to allocate no more than 10% weightage of their entire portfolio.
-> (Add) Eastspring Investments Small-Cap Fund - Class: Malaysia Small to Medium Companies Equity

What about Gold? Honestly I do not know yet. It's hard to guess the fair value to be frank this is why it is so damn difficult to decide.

In conclusion, 2016 is likely to be a more challenging year as compared to 2015. Nevertheless, there will undoubtedly be opportunities for those who are well prepared. Good luck!

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