Balanced risk exposure is crucial (page 1 of 4)

The best way to avoid the stock picking risk is to play the recovery via equity funds. In regard of direct investments we stick to our preference for selected cyclicals (incl. TMT) and value plays.

US Stocks

Moody's just released its latest report on US corporate credit quality, 1Q corporate bond defaults surged to a record high of US$31.8 billion. This is the most severe quarter for defaults over Moody's 80-year database. In dollar terms the amount accounts for 65% of total debt issued in 2000.

A quote from the recent WSJ "So, if you can't figure out whether the economy is slipping into a recession or not. Don't worry, you are in good company".

The two indices, often used to predict economic activity, currently offer exasperatingly different outlooks.

Last Wednesday, the Conference Board in New York reported the latest results for its Index of leading Economic Indicators, which is designed to forecast where the economy is headed in the next 3 to 6 months. While the index fell 0.3% in March to 108.5, the second consecutive monthly decline, the board said that pace of decline was not deep enough to prompt an economic contraction

Meanwhile, the Economic Cycle Research Institute says its monthly and weekly leading indices show a recession is no longer avoidable, for the process that leads to higher unemployment is in motion

To see where our Mr. Greespan stands, first, a history of the Federal Reserve Bank chairman tertiary education, Alan Greenspan did his undergraduate study in NYU, and studied under the renowned Geoffrey Moore known for his research work on business cycle and inflation. Next stop Columbia University for his graduate work, there during the late 40s, Mr. Greenspan also studied under Arthur Burns, who co-authored the book Measuring Business Cycles, which according to some people ranks among the great works including Keynes's General Theory.

The surprise Fed Fund rate cut last week is perhaps foreshadowing lower economic activities to come. If so, there will be more rate reductions. Lower interest rates should support the stock market, but earnings recovery will be delayed and as I have mentioned in the week before last issue of the weekly, the old economy should make a comeback before the new economy.

The most common method to evaluate the worth of a stock is to discount the future dividends or cash flow generated by the company's business. Therefore, the lower the discount factor the higher the present value of the stock price. Looking forward, despite slower growth rate, lower interest rates should provide investors with good value in stocks.

US Technology Stocks

A busy week for NASDAQ which resulted in a rebound in positive sentiment as well as price movement. On a week-on-week performance, the NASDAQ Composite Index gained 10.3% to close at 2163 last week. A slow turn in investor sentiment the week before was further encouraged by the recent Fed's midweek action that helped support continued buying. While companies that reported during the week generally met with revised expectations, quarterly sequential revenue growth were mostly significantly down, with demand visibility still limited. Nevertheless, while company executives and analysts are still trying to pierce through the thick cloud of demand uncertainty ahead, the market has moved higher and appears to be either running ahead of fundamentals (thus taking an investment "bet"), or investors have begun pricing in a longer time horizon for their investment returns (whereby the longer-term prospects are outweighing the near-term risks).