My opinions

Sunday, 17 January 2016

The oil price faces new downward pressure

The lifting of sanctions on Iran's economy could add more downward pressure on the oil price, as the oil export by Iran will increase the overall supply of oil in the industry. Therefore, the oil price is likely to fall further. However, I am still confident that the oil export countries are likely to cut their supplies and push back the oil price back in the second half of this year.

Friday, 15 January 2016

Concerns about the Chinese debt level

Borrowing has fuelled some of the Chinese economic growth; however, at the same time, the total debt has reached $23 trillion, which is 231% of the Chinese total GDP. This is a dangerous level, and the cutting of interest rates and the required reserve ratio could increase the Chinese debt further. Debt is like an unstable nuclear reactor. It could create energy for the economy to grow faster; however, it can explode and damage the economy, Greece has set a bad example. I think that the Chinese economy experienced a period of fast economic growth but meanwhile many problems have accumulated and hidden in the economy. Instead of seeking an economic growth, I think that the priority for China from economics respect is to solve the debt problem and restructure its economy.

Thursday, 14 January 2016

Most US presidential candidates from both parities plan to increase taxes on Wall Street

The frontrunners from both Republican and Democratic speak of increasing taxes on Wall Street. I am not going to discuss about how these tax plans could affect the industry, I want to discuss a question of what makes these candidates ignore the interests of the big business groups. As I have discussed in my previous article, Internet has reduced the cost of make advertisement. Moreover, they can attend many TV debates to use their good ideas to make themselves more popular. As the public know their names already, either being invited to the TV debates or being isolated can all attract people's attention and improve their popularities. Therefore, now and in the future, the influences of big business groups on the political candidates will be weakened by the diminishing cost of advertisement and these candidates will focus more on winning support from the social majority.

Wednesday, 13 January 2016

The value of a currency is determined by the economic performance and the government stability

I think there is a correlation between a country's currency value and its economic growth. Back to the early 21st century, the Chinese government was worrying about the rapid appreciation of RMB lowering the Chinese exports. Nowadays, despite the continuous devaluation of RMB, many expect China will have a weaker trade in 2016. Of course, expensive currency lowers the exports; however, the value of a currency at most time presents people's expectation of the country's economy. Currency is backed by the government and the country's economy. If the government is unstable, the currency will devalue very quickly. For example, Hitler's Reichsmark became worthless after the Second World War. Meanwhile, if the economy is not performing well, like current China, the value of its currency will devalue as well. Because when the economy is produce insufficient amount of goods and services, then hyperinflation is very likely to take place. Therefore, the value of a currency is determined by the government stability and the economy's performance.

Tuesday, 12 January 2016

Oil price and the oil export countries (focusing on Russia)

Oil slips towards $30, and many oil export countries face financial difficulties. For example, Russia is cutting its budget expenditure by 10%, and the Saudi Arabia's cost of riyal-dollar forward prices is pushed up. Currently, as the demand side is weak, the oil price will not rise back in a short period. This means the finance of many these oil export countries will become worse. Many financial problems could grow to become global issues. The most obvious problem is whether Russia is able to pay back its debt. If the oil price remains at the current level or even lower, the Russian economy may face the same situation of what Germany faced after the First World War. After the First World War, German industries were hit heavily and many workers and post-war soldiers were left on streets jobless. At that time, Germany economy could not produce sufficient goods for the economy, leading to a hyperinflation as the result. Currently, the largest Russia industry, the energy industry, is hit by the low oil price. The unemployment rate in Russia in 2015 is expected to be higher than it in 2014, the figure is expected to be even higher in 2016. Moreover, the inflation rate is currently above 10%. If the Russian government decides to devalue its currency, the inflation rate will rise rapidly. Therefore, at the moment, Russia will do everything to push up the oil price. If the oil price remains low or even continues to fall, there might be a Russian debt crisis, which could spread its affect around the world via the financial system.

Monday, 11 January 2016

Are professional investors good or bad for stock markets?

I read an interesting comment about the Chinese stock market today. It says that retail investors make up the bulk of the Chinese stock market. I am not going to make any judgment on it. Let's assume this is true. I think that this can be a cause of the fragile stock market and I also believe that professional investment is healthy to the market.

Could professional investors, in other words, financial institutions, absolutely make more money out of the stock market? It is not necessarily true. Looking at the last year returns of many retail equity funds of big institutions, most of them have negative returns. The average loss was greater than 5%. I believe there are definitely some retail investors who make positively returns last year out there. Therefore, I am not saying that retail investors should give their money to institutions to invest, but I am saying institutions should be more active.

The big institutions have more resources than retail investors, in terms of information, intelligence, human resources, money and etc. They are more likely to make more rational and more precise judgement. When the market is overheated, they are the ones who are more likely to sell their equities and cool down the market. Therefore, the institutions should be greedy and a profit maximiser. "Nation teams" could push the index back but cannot reduce the bubbles in the market. The "greedy" institutions will hold the market prices within a reasonable range, as they cannot sell off all their equities without letting the market knowing, so they need to worry about their remaining equity value and profits of selling of equities. Therefore, active big institutions can make the market more stable and reduce the speed of bubble creation.

Of course, those big institutions can make mistakes; however, the chance for them to make mistake is lower than the chance for retail investors to make mistakes. Overall, I suggest that large institutions being active can help to stabilise stock markets.