Date
27 May 2017
Investors should remain prudent, because the outlook for global economic growth and corporate earnings is still very weak. Photo: Reuters
Investors should remain prudent, because the outlook for global economic growth and corporate earnings is still very weak. Photo: Reuters

Should we ‘sell in May’?

Although the stock market is not doing as well as it was in March, it has shown an overall positive trend this month.

As May approaches, some investors may worry about whether to heed the traditional advice to “sell in May and go away”.

Last week, risky assets like global equities, high-yield bonds and commodities continued to rebound.

The S&P 500 is only 2 percent below its historical high, while Japanese and European stock markets are also bullish.

Although the oil-producing countries failed to reach an agreement to freeze output, oil prices, which might have been expected to fall as a result, climbed to a five-month high, thanks to supporting factors including the strike in the Kuwait oilfields and declining US oil production.

I believe the strong performance of oil prices reflects relatively strong market sentiment.

A bounce in oil prices will relieve pressure on high-yield bonds, lifting their indexes to an eight-month high.

Commodities prices will also get support from rising oil prices.

With expectations of a slow pace of interest rate hikes by the US Federal Reserve and a weaker dollar, the prospects are now brighter for the stock markets of emerging economies, especially in Latin America and Eastern Europe.

Recently, China’s high leverage has come under the spotlight.

The rising risk of defaults by Chinese companies does reflect the limitations of boosting the economy by credit expansion.

However, as the Chinese economy gradually recovers, investors may feel a bit relieved.

Taking a closer look at the mainland government’s stimulus efforts, there’s a good chance that the measures will be able to support economic growth, but they may not be enough for a significant rebound.

Nevertheless, I believe China will still outperform other Asian countries in the short term.

Although the rebound of risky assets has lasted longer than expected, I recommend that investors be more prudent, because the outlook for global economic growth and corporate earnings is still very weak.

The news from Europe and the United States is half positive and half negative.

The Japanese economy remains weak.

In the medium term, China issues, the dollar index and oil prices will be the dominant factors.

This article appeared in the Hong Kong Economic Journal on April 28.

Translation by Myssie You

[Chinese version 中文版]

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MY/DY/FL

Investment Strategy Head in Northeast Asia at Standard Chartered (H.K.)

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