Wall Street's volatility: Where do we go from here?

It's not uncommon to find Wall Street trading at a very volatile pattern over the over recent times and this has indeed unnerved many investors. Early part of July saw a one-day rapid rise of 2% but only to be followed by a series of see-saw battle where it's also not uncommon to see index fell by over 1% in a day. Last night was another example where Dow Jones index fell by 1.6%, triggered by fickle-minded investors who actively reacted to every bit of financial indicators or corporate news on the never-ending sub-prime property woes. Overall corporate earnings do not seem to help either, as results were mixed. This leads to a very volatile trading as a result of these events. However, it's key to note that the long term trend of Wall Street do appear on the uptrend, as indicated by the index surpassing the all important psychological 14,000 points.

As for Asia, most stock market (with the exception of China perhaps) in principle follows the sentiment of Wall Street. Indeed, huge foreign funds continue to pour into Asia which cause some alarm bells ringing in some countries particularly China. Authorities are generally concerned that this could be a potential bubble building and a possible scenario of withdrawal of currency carry trades may pull the plug again, as global interest rates appear to rise in general as a result of inflation fears and high crude oil prices.

In a latest measure by China authorities to curb over-heated economy and stock market, the Government has reduced tax on interest income in order to encourage more savings, and also liberated policies on local investors investing their funds overseas.

As we move into a higher risk environment, given the record high stock markets in many countries, investors should exercise more caution ahead. I believe fundamentals will continue to play an important role, and this is best supported by positive corporate earnings. In addition, investors should pick industries where high growth is anticipated and sustainable, such as oil and gas sectors, and companies with exposure to infrastructure and construction boom in certain countries such as China, India, Malaysia and the Middle East. Singapore also offers exciting opportunites ahead for its property, gaming and tourism industry. In fact, Singapore may be the most exciting country in the world right now in terms of property investments, fueled by the upcoming new casinos and the Integrated Resorts.

Malaysia's stock market has also done fairly well recently, achieving record highs after being a laggard for so long. Going forward, i believe the following industries will continue to lend great opportunities to investors, driven by different fundamentals:

1. oil and gas - as new oil fields coming into production stage
2. infrastructure and construction - due to Government's pump priming in line with the 9th Malaysia Plan (9MP).
   
3. plantation - driven by high demand growth as a result of economic boom in China and India, and development of biofuel as a substitute to crude oil
4. Property - as the Government continued liberalisation on property ownership by foreigners and the strategic moves to market Malaysia properties to the global market.
   

Fundamentals are also supported by generally positive corporate earnings and the same is expected to happen in the foreseeable future. However, there are still inherent risks which the Government needs to tackle quickly in order to enhance its competitiveness, including:

1. moving up the value chain for key industries particularly manufacturing and service industry
2. cutting the red tape and improve efficiencies in Government public service authorities to be compatible with global standards
3. execution of mega plans and targeted projects in a timely manner
4. Ability to continuously attract foreign investments in view of intense competition from better emerging markets such as China, India and Vietnam.
   
5. ensuring a smooth and successful General Election