Bears in the woods

The week has started in the same lacklustre way it finished last week. Overnight on Sunday, China released export data that was way below expectations. Chinese exports fell 18% in February year on year, this was against expectations of a rise of 7.5%. On the back of this news the copper price fell to its lowest point for 8 months. In the coming week a lot of Chinese economic data for February will be released, including trade, CPI, industrial production, fixed asset investment and retail sales, which may give us a clearer picture as to the current state of the Chinese economy. Just as the weather is being blamed for a lot of the recent weaker data coming from the US, many analysts point to the lunar holiday as part of the explanation for the weaker China data. Overnight on Monday, the Shanghai composite index fell 2%. On the plus side, inflation rate came in below expectations, falling to a 13 month low of 2% year on year. This lower inflation figure should give the Chinese central bank some room to manoeuvre, helping to ensure they meet their desired 7.5% growth rate for 2014.

The FTSE 100 appears once again to be failing at its latest attempt to break the previous highs. Aside from the start of February, 6700 has provided support for the index on two other previous occasions so far in 2014. If the FTSE 100 manages to find support at this level in the next day or two, hopes will once again be raised that it can finally break through this historic ceiling of 6930. If the FTSE 100 fails this level of 6700, expectations may be for the FTSE 100 to trade back down once again to the lower end of its year-long trading range.

What does continue to give me hope for equities this year is that there appears to still be plenty of bears in the woods. Most days, I can pick up a paper to read the latest death nail being banged into the equity market. Today's bear story came from Seth Klarman, one of the world's most respected investors, who expresses concerns on the valuation in technology shares post the recent deals. He also talks about the fact that investors are not prepared for the withdrawal of central bank liquidity. His points are fair and his views should be respected, but to my mind equity markets always have shares that are overvalued and undervalued, whether it is 2008 or 2014. Central banks are constantly loosening and tightening liquidity, but in my view monetary policy is set to remain loose relative to history for a while yet. In 2007, bears were almost extinct, the WWF will be pleased to hear they are a thriving community once again.

Posted on March 11, 2014 .