Unlock The Equity Cross Road....

The word goes that when the U.S. sneezes, the rest of the world catches a cold. The above scenario is still pretty much valid, given how the financial troubles in U.S. had led to the global economic meltdown for the rest of the world! So despite all the speculation about the potential decoupling of world's economy from the U.S., it is simply not true as globalization has increasingly turned the world flat and like it or not, Americans are still the biggest spenders in the world, mopping up many products and services the rest of the world has to offer!

However, China has gradually and surely increased its role in the world's economy, given its huge domestic market (served by 1.4 billion people) and the enormous pace of growth averaging 8 to 10%. In time to come, it will not be exaggerating to say that if China sneezes, the world will likely catch a cold too!

Global stock markets have recovered strongly, against the odds, for the past 6 months. Major doubt is now being raised as whether the optimisms have run ahead of fundamentals or it's a mere speculation? The answer, I'm afraid, is highly subjective. Bear in mind that equity market is always forward looking, which essentially means that as an investor, we simply cannot wait until the event unfolds! Yes, it's a calculated risk that we all will have to take.

Recent data seem to have pointed to a sustainable recovery. However, whether one views it as a V, W, U or S shaped type of recovery is again highly subjective! Tan Teng Boo of iCapital Fund Management seems to believe we are at the beginning of another bull run and there will be a V-shaped recovery! However, most other analysts or financial gurus tend to take a more conservative view. Taking a long term view with China and likely India to spearhead future's economic growth, it is likely that we should have seen the worst for now provided U.S. do not spring more surprises or open up another can of worm!

Right now as we speak, global markets seem to be reaching a cross road where the next direction should be. It is understandable that investors are feeling nervy, having witness a dramatic bull rally for the past 6 months. An overheated bull will tend to follow with meaningful short term bear correction. Only then will the bull have an opportunity to recharge.

Mark Mobious, the well-known founder of Templeton Asset Management and investment guru, stated about a month ago that markets could decline between 20% to 30% following the recovery.

As a matter of fact, China's Shanghai market has corrected (or crashed?) about 20% the last couple of weeks, driven by fear of Chinese Government's plan to tighten the domestic credit market. Tightening credit at a time when China's export and unemployment are still weak does not seem to make sense. However, it is also a concern that excessive liquidity could lead to excessive speculation and unproductive output. As such, the latest measure is meant to ensure that credit resources are diverted to productive investments, which will strengthen real economic activities rather than continue to create bubbles in the stock market and the real estate.

To me, it's good to take a pause and re-assess the status quo, rather than taking the gung-ho approach. The faster one climbs, the harder one falls....

Perhaps, it's also a good time to re-assess your portfolio too. Some spring cleaning will always prove to be timely indeed in due course.