The “2022 Fubon Financial Trend Forum Annual Midfielder” debuted today (4). Dr. Luo Wei, Chief Economist of Fubon Gold (2881), is looking forward to the third quarter. He believes that stocks are no longer better than bonds, and the allocation should be balanced. In particular, the bear market reappears. This time, the period and magnitude from the peak to the trough will exceed the average of previous years, 289 days and 37%.
As for the foreign exchange market, Luo Wei believes that if the global economy deteriorates further in 2023, foreign capital will regard Taiwan as a safe haven, and the New Taiwan dollar will have the opportunity to strengthen rapidly next year.
Luo Wei, chief economist of Fubon Financial Holding, gave a speech on “Global Economic Outlook in 2022” today. He believes that in the second half of the year, the capital feast has come to an end in the stock market. Rising wages and raw material prices have reduced the room for corporate profit growth. The bond yield rate has roughly reflected the central bank’s rate hike by nearly 80% to 90%, and the stock market has relatively lagged behind. The trend of “equities outperforming bonds” in the past two years is about to change. Since the third quarter of this year, as bond yield rates approach highs, Asset allocation should be gradually adjusted to the balance of equity and debt.
The S&P500 index has fallen by more than 21% since the decline in January and March this year to June 14, and has fallen into the bear market territory. According to past experience, the S&P500 takes an average of 289 days to go from peak to trough, and the average decline is about 37.3%. Rising energy and food prices, rising spending on necessities will crowd out demand for non-essentials, and central bank rate hikes will force zombie companies into the picture. During this period of stock market decline, the magnitude will exceed the past average.
Therefore, Luo Wei suggested that the mid- and long-term layout should take the future key industry trends—high-speed computing, high-speed transmission, green energy revolution, automation and remote remote control as the evaluation benchmark, and take relevant countries, industries and enterprises as the main investment targets, which is forward-looking. Sex industry and pricing power companies are worth long-term holdings.
In the bond market, the yield curve was flattened as central banks accelerated rate hikes, pushing up short-term interest rates. However, inflation expectations and the wait-and-see approach of major buyers leave long-term yields still a chance to rise further. After countries release real economic data from July to August this year from August to September this year, they can more clearly judge the economic prospects of various countries and the follow-up trends of the central bank, which will be a good time to enter the market. If the global economy deteriorates further in 2023, long-term government bonds will be the first choice for investment, followed by high-rated investment-grade corporate bonds.
In the foreign exchange market, due to geopolitical risks and differences in the monetary policies of major central banks, the US dollar was the strongest in the first half of the year. If the European Central Bank announced in July that it may raise interest rates continuously in the second half of the year, the euro will strengthen and the dollar will slip slightly. However, with the yen and sterling weak, the odds of the dollar index falling back below 100 are not high. As the Bank of Japan insisted on keeping its loose monetary policy unchanged, the yen once fell below the 135 mark. If the yen continues to depreciate and approach 140 in the future, we must pay attention to whether the Japanese Ministry of Finance will take substantive intervention actions.
As the epidemic heats up, the lockdown is strengthened, and the spread of Chinese and U.S. government bonds has reversed, and foreign capital has withdrawn from the Chinese bond market. Quarterly RMB will fluctuate within the range of 6.6 to 6.8.
Due to the widening interest rate gap between Taiwan and the United States, the withdrawal of foreign sales, the shrinking of foreign trade, the wait-and-see attitude of exporters, and the rising demand for foreign exchange purchases by the public, the New Taiwan dollar may further depreciate in the second half of the year. However, if the global economy falls into a deep recession in 2023, foreign investors will see Taiwan as a safe haven for emerging markets as they did in 2016 and 2020, and the New Taiwan dollar will strengthen rapidly.
Follow-up focuses that deserve attention include: (1) If prices continue to remain high, is it possible for them to get out of control and evolve into the stagnant inflation of the 1970s? (2) China’s economic slowdown, and how the Chinese government will promote support policies and relax various regulatory measures. (3) The liquidity crunch intensifies the volatility of the financial market. The global financial market in the third quarter will be the same as the second quarter, and there may be relatively large fluctuations due to sudden factors at any time. (Review: Lu Junyi)
Further reading
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Yahoo Finance correspondent Ye Yiru: 22 years of experience in mainstream financial media, from the bubble of Web 1.0 in 2000 to Web 3.0 of Meta, witnessing the rise and fall of large and small enterprise groups in Taiwan, and going through 5 international financial crises. We think that finance is life and is omnipresent. No matter how difficult the financial knowledge is, we should say it plainly. Whether you are old or young, you should manage your finances.
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