Return of the bulls?

It was just over a week ago when I more or less decided to reap half of my portfolio returns. I was quite convinced that the STI will fall back to lower levels, though not to the level reached in early March. It was not until a few days back that I decided that it was not the risk I had wanted to undergo, and convinced myself to hold on to the counters, many of which were undervalued at the point of purchase. The new low, if it ever would to happen, won't justify a second purchase of the same counters.

I came across this fairly interesting business comment in the Today Newspaper on June 10 Wednesday. It is 'Bull-market story in the making?' by Matthew Lynn. In a nutshell, it has 4 logical arguments why this recent rally is not going to die down so soon, if it ever dies down.


Savings
People living on credit was one of the big reasons that led to the financial meltdown. It is stated that the US savings rate in April had jumped to 5.7%, the highest in 14 years. Households, much like banks, are repairing their balance sheets. Probably faced with the possibility of unemployment and further recession, people will want to save more. However with interest rates close to zero, it will bring greater value if the cash was placed in other assets like equities.

Inflation
According to the article, central banks around the world are following the policies of 'quantitative easing' aka printing money. Possible increases in inflation and the fear of it would cause people to convert their cash into other tangible asset classes that are able to sustain value. Equities will be something that can tide them over.

Takeover
The economies of Brazil, Russia, India and China are buying over businesses in the West, and they are willing to pay for them. This takeover boom will put a premium on these assets to be acquired, a factor which may push up the respective equity values.

Shareholders
Companies had various ways to raise capital: banks, bond markets, shareholders. They could even get a friendly private-equity firm to buy them out. In these few years following the meltdown, capital will be in short supply. Banks will not give out loans so readily. Shareholder importance, will hence, increase. Just look at the recent spate of right issues happening right here in SG, where companies seek to raise funds for debts and development. Increased shareholder significance will warrant greater dividends and stock prices.


Present portfolio in the US market is registering a loss of around 5%. It has been a rather bullish week for US stocks and I'm expecting it to hit an average loss of 3% tomorrow. Not touching them for the moment, as the small caps are picking up rather quickly and I have also expended my funds. We shall see.