Sunday, May 29, 2011

Near term STI

The Straits Times Index (STI) closed on Friday at 3,135 points, which is about a 3.5% decline on a year-to-date basis. My portfolio comprising mainly small caps have done worse, at down 10%. Using the two as a comparison, equity investors have been largely cautious, preferring to hold on to blue-chips for their dividend yields, as the usual macroeconomic issues repeat themselves. These issues include the unwinding of the US Fed stimulus, Eurozone debt issues (Spain this time) as well as a slowdown of China's economic growth.

My own outlook or feeling are as follows.

One-Month : The STI will be range bound between 3,000 to 3,200 with close to no volumes. June has typically been a quiet month for investors too.
Three-Month : Watch out for the 3,200 level as it might signal the bull run.
Through the end of 2011 : The STI should slog its way till the end of the year at about 5-10% higher than it was in 2010, based on the median expectations of readers here.

I know I sound like the horoscope. My personal view is that I will accumulate stocks at 2,900 to 3,000 levels for the long run just to play safe. I am a long term investor because my time frame is very long, at least 20 years. The stock market is not in a supercharged bull run but it will have legs for 5 more years. The economic troubles in the developed nation will mean that everyone is looking at bonds, causing the fixed income instruments to get pricier. Right now, we are in the process where bonds are getting more air time than stocks, for the same reason. These make stocks a contrarian investment.

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