Monday, November 14, 2016

Portfolio Rebalancing to factor in Global Reflation.

Events in the U.S. last week overshadowed whatever may have occurred elsewhere in the world. The key now is where are we going from here and how best to profit from that.
I believe that we are only in the first of a nine-inning game. Trump has not even taken office but the market is correctly anticipating change 6 to 9 months down the road, which is the norm. The market is finally focusing on reflation here as well as abroad. The world is moving from a conservative bias with policies and regulations that limited growth to much more accommodative policies.
Finally, monetary authorities here and abroad are talking about the need to pass the baton to governments and fiscal policy to promote growth as they did as much as humanly possible and the incremental benefits of monetary ease from here were negligible at best. I mentioned again last week that the chief economist of the World Bank supported Janet Yellen’s comment that the monetary authorities should let the economies run hot before hitting the brakes.
If everything comes together as I expect then we will be talking about an overheating economy, inflation over 3% and much higher interest rates a few years down the road. But in the interim, earnings will take off for the beneficiaries of growth offsetting any increases in rates therefore leading to much higher stock prices for the reflation beneficiaries. The safe stocks of the past with steady but low earnings growth will suffer and decline. And sell all bonds. Sell the dividend yield stocks too. Thus we have our long/short portfolio.

For myself, I am more bullish on AUD and USD appreciating against the SGD. Thus, I have for the past 2 years allocated 50% of my available resources to AUD and USD equities and cash.

I have also lighten my SGX portfolio in favour of a ASX and NYSE/NASDAQ portfolio, with a strong emphasis on the financials and industrials as well as technology in my portfolio.

I've also not add on to my bond portfolio the past 2 years. Instead, the proceeds from bonds redeemed by the issuers at par or matured was put into productive use in the equities market of the USD/AUD market.

Every year, we have had at least one steep correction and I do not think this will change next year and I intend to keep to my portfolio till the facts changed.