Time to buy Gold?

In this week’s The Edge Malaysia, we suggest that it may be time to consider putting a small percentage of one’s portfolio into the yellow metal, as a hedge against rising risk broadband.

Equity markets have generally done very well, from emerging markets to the United States. So have fixed income instruments. But likely rise in global interest rates, albeit gradually, may be capping these potentials.

Geo-political tensions in South China Sea and Europe suggest some risk diversification is reasonable.

Finally, net long positions in gold by hedge funds and money managers have increased in recent weeks, as reported by the US Commodity Futures Trading Commission.

Read The Edge this week for the complete analysis.

A short term reprieve from bad US, China data?

Bad news can sometimes be good news, especially when it comes to economic data and its impact on the stockmarket. 

Last week was a case in point. Economic data from the world’s two largest economies – US fourth quarter GDP and China’s February purchasing managers’ index (PMI) -- were disappointing, indicating that the global economic recovery may be hitting a speed bump. 

US fourth quarter gross domestic product (GDP) growth was revised downwards to 2.5% from 3.2% (refer to Chart 1) while China’s February PMI, a measure of manufacturing activity, dropped to a 5-month low of 50.2 (refer to Chart 2). 

 

While the data is bad for the two countries and the global economy, it actually is good news in the short term for the stock markets of emerging economies, Malaysia included. It means the tapering of quantitative easing (QE) could be delayed or slowed. That will in turn delay the rise in US interest rates and the outflow of foreign portfolio funds from this region.  

This will be positive for the local stockmarket and ringgit in the short-term, although it is unlikely to be sustained in the long term.  Over the longer term, a slower than expected recovery in the US will only delay, but not remove – the likelihood of QE tapering. However, if the US recovery stalls and China slows, there will be further negative repercussions on Malaysia’s economic prospects. 

The above forms part of The Edge weekly update on The State of the Nation. Read the full article in the upcoming Edge.