2011 Strategy Outlook

We believe 2011 investing will face continued macro uncertainties. The success will be determined by both getting the market perception right and getting reality right. Furthermore, the gross/net positioning should be flexible enough to accomodate the swing of market perceived probabilities for each major macro scenario.

Three major scenarios and current assessment of probability associated with each one:

1) US recovery solid, bringing unemployment down and 10-yr treasury yield gradually rising towards 5%

Probability: 50%

Impact on Asia:

– Emerging Asia: will be more aggressively tightening to deflate asset bubble, causing short term pains to the market but long term structurally positive => good mkt for long/short

– Developed Asia: likely outperforming with more exposure to US-oriented sales

2) US recovery initially good, but facing uphill battle later on with too fast rise in long term yields and not enough improvement of employment

Probability: 35%

Impact on Asia:

– Emerging Asia: tightening policy to continue to fight inflation and asset bubble, but complicated by sluggish recovery in the US, creating uncertainties beyond the mkt expectation, leading to risk of de-rating/multiple contraction

– Developed Asia: could be good mkt for fundamental long/short as growth from emerging world should be relatively good

3) US recovery turning out to be a fake one, with structural negatives including muni fiscal crisis, consumer de-leveraging, Euro issues, etc., running out of control

Probability: 15%

Impact on Asia

– Emerging Asia: QE3, plus delayed economic structure reform, will pile up long term inflation and asset bubble pressures while in the short term causing corporate earnings disappointment and subsequently risk-off trading

– Developed Asia: likely underperforming as double dip concern holds.

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2 Responses to “2011 Strategy Outlook”

  1. I have to admit that i sometimes get bored to read the whole thing but i think that your blog can be an exception. Bravo !

  2. i’m flattered – pls do come back to visit the site. thanks.

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