(By Roger Tan, SIAS Research)
Global equity markets rallied after the European Union announced a €1t rescue plan for Greece. Finance ministers of the European Union revealed plans to set up a fund to help the insolvent nation last Monday morning. Investors cheered on the news and sent the STI up by over 2.2 per cent , while in the US, the S&P 500 was up by 4.4 per cent .
Rationalisation set in just a day after. Investors started ques- tioning the effectiveness and also the potential long-term implications of the rescue plans. This caused equity prices to stay almost directionless and volatile for the week. The STI closed the week 1.2 per cent higher while the S&P 500 was 2.2 per cent higher.
Fear over the Greek crisis was not the only issue stopping the charging “bull” that came in Apr 10. Fear of China introducing more property prices cooling measures also affected investors’ mood. With the World Cup also coming in Jun 10, we believe that we will continue to see a lackluster and direction- less equity market for the rest of May 10.
What can investors do in such a market? One potential strat- egy is to implement a market-neutral strategy. This includes long-short strategies (where we long one stock and short one stock to take advantage of the reversion effect) that we will soon introduce in our technical analysis reports prepared by our technical analyst Edmund Seow.
There is also a chance that volatility may also start to come off in the next weeks. Investors can consider buying out of the money call structured warrants on the STI to take advan- tage of this expectation. For stocks, we continue to like Cheung Woh and Marco Polo and we believe that investors should consider having or leaving these two counters in their long-term portfolio.
