Finally, the first half of the year 2021 is over and it is time again to gauge the various sectors’ performance thus far.
Energy sector continues to lead and followed by the financial sector. With the strong economic recovery expected and low interest rates environment, consumer staples and utilities continued its under-performance for the year.
Dow finished the first half of the year up 12.7%, Nasdaq up 12.5% and the Russell 2000 overperforming with a gain of 17%. The strong economic recovery and global vaccination drive continues to fuel the equity run.
I am expecting to see this momentum to continue into the second half of 2021, especially so in the 4Q of the year. This month, July begins the worst 4 months for the nasdaq statistically. With the nasdaq trading near all time high, and a possible recovery of the 10 year treasury yield to 1.75%, there is a possibility of some sort of a correction to the nasdaq but the intensity of this correction remains to be seen. A healthy bull market correction is necessary to keep the market going in the medium term.
In the 2nd half of 2021, we may see funds outflow from emerging markets back into the US market as investors reposition themselves for an interest rate hike environment in the US. Usually investors position themselves prior to actual event. But I do not see a heavy outflow as FED chairman, Powell has indicated that the earliest rate hike will be somewhere 4Q 2023.
Just a recap, my target for the S&P remains at 4,600 for the end of 2021.
Hang Seng Index/ Hong Kong
As for Hong Kong, political headwinds remains as some outflows are expected. Hang Seng Index has been consolidating between 28,000 to 29,000 in the last couple of months, after the index saw a rally from around 23,000 in September 2020 to hit a recent high of 31,000 in February this year.
Straits Times Index/ Singapore
We saw STI consolidating in a similar pattern. As Singapore’s economy is very dependent on global trade, the global reopening will be a key catalyst for the STI. The Singapore government has been careful in managing the crisis. Health minister Ong Ye Kung commented on the 1st of July that Singaporeans may look to international travel to places like the US, Hong Kong, and certain parts of Europe by the end of the year. There is a possibility that travel bubble between Singapore and Hong Kong will proceed in the near future as both cities are in a good position to relook into it again after the plan was deferred twice.
As Singapore slowly ease it’s movement control, we should see the economy continue its strong growth registered in the first half of the year.
I continue to see strength in the global recovery from the covid crisis as vaccination speeds up globally. However, a full recovery will take time and my personal take, earliest that this may happen is in 2023. The Fed has also signaled that the earliest rate hike is in the last quarter of 2023.
Accommodative monetary policies globally continue to drive recovery. Excess liquidity is fuel to the stock market. As the market recovers, some volatility is expected as the road of recovery is expected to be bumpy, with new mutations of the virus closely watched. Equities are still my preferred instruments at this moment of time. My positions are mostly in banks, financials and the travel industry related counters.
Meantime, wishing all readers a profitable 2nd half of the year.