Uptrend in financial markets to continue

KUALA LUMPUR: The financial markets are likely to sustain their rebound after factoring in the situation of Europe and the US, according to Mark Matthews, head of research (Asia) of Bank Julius Baer.

With the Europeans moving toward a consensus solution and the better than expected financial data from the US, Matthews expects global financial markets to continue their upward trend, which started at the beginning of October.

“Half the reason [why markets are going up] is because the Europeans finally realise that they have to find a solution quickly and not make it a very drawn out process like they wanted to.

“But the other half of the reason why markets are going up is because the US economy has been much more robust in this recent quarter than people realise,” he said.

On Greece’s bailout, Matthews said that over the last four days, it seemed that Germany did not want to end up paying for everything. He added that what has also become obvious is that Germany has a lot more power in negotiations than people realised.

“So gradually things are coming around the German way of doing things,” Matthews said.

He said Germany will provide capital where its necessary but it will not go the easy route which is what France and Greece want.

Matthews was not sure if a consensus would be reached at the Euro Summit yesterday.
Matthews: Malaysian markets have a low beta which makes them relatively less risky when compared to the market such as in China, Taiwan or South Korea.

“I think they [European nations] are working toward a resolution. I’m not sure if it will be tomorrow [yesterday], but, the wheels are turning in Europe now, in a way they were not a month ago,” he said.

On the US economy, Matthews said data from the US in the last three weeks has been much better than expected.

“Retail sales, auto sales, purchasing manager indices, consumer confidence index, and Philadelphia Fed manufacturing index, all of these have been much better than people expected,” he said.

He said the 3Q GDP of the US, which will be announced this week, will be the strongest in over a year.

He expects the US to grow by 2.5% in 3Q. The US only grew by 0.9% in the first half of the year, according to Matthews.

“There has been a very strong rebound in the US economy... actually nobody really understands why. But it is happening,” he said.

He said until there is a reason for the strong rebound, the sustainability of the US economy will be uncertain.

Matthews is bullish on the global technology sector. He said margins have stabilised for technology companies that went through the big bubble in the 90s.

“Ever since then [the bubble] there has just been tremendous compression in margins. But we’ve reached a stage now where margins have come down to as low as they are going to go,” he said.

“At the same time those companies have become very lean and mean. There is tremendous amount of cash flow in the global technology sector,” he added.

In the 90s, he said, the Internet was called the “killer app”. Matthews thinks the new “killer apps” are smartphones and tabloids, which are changing the way people use computers and have much room for growth.

He said a good long term investment would be in global multinational companies that have exposure in both the developed and emerging markets.

“You get the emerging market growth but also the developed market corporate governance,” he said.

He said these companies have high barriers to entry with their strong brand names and hard-to-emulate products.

Matthews said the financial market in Malaysia is attractive in terms of risk and return. He said Malaysian markets have a low beta which makes it relatively less risky when compared to the markets such as in China, Taiwan or Korea.