Stimulus Kicks In From Japan and Europe

Stimulus Kicks In From Japan and Europe

Gold bullion barr on a stocks and shares chart
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Vocus Communications Limited [ASX:VOC] has jumped back onto my trading portfolio this week. The stock continues to prove itself as a very profitable growth stock for investors. Today, the market continued to rally on the back of an apparent stimulus from the Bank of Japan, taking Japan into negative interest rates. However, today’s Asian market rally was a continuation of the positive sentiment from last Friday.

After the Aussie market closed, the Wall Street stock futures appeared to be in negative territory, which will likely transmit to the Aussie stock futures for tomorrow. The cause of this reversal was China’s worse-than-expected manufacturing activity numbers. This means investors should expect further volatilities in the week despite today’s gain in VOC pricing.

On the commodities front, it is hard to say what OPEC is planning with other oil producing nations such as Russia. Saudi Arabia and Iran continue to be the centerpiece for the oil story. The purely one-sided negative sentiments from oil deflation, slowing China, rising US rates and Chinese financial reform uncertainties are now no longer the sole chemistry in the market. The stimulus-side from Japan and potentially from Europe will start to kick in. The Fed is also softening in the face of financial market uncertainties. Another leg of support would be any actual or signal on production cuts in oil. All these are supportive factors that will have a positive effect on the market.

China continues to be a negative drag on the market. There are two possible ways going forward for China. One is more financial reform uncertainty from the currency or capital market sides; a contagion on corporate debt or a slowdown in consumer activities. This would be negative for the market. Another way forward is a gradual bottom and surprises on the upside. This would give the final leg to support a recovery in the stock markets.

I am seeing a shift from pure negative factors towards more positive support factors. This makes sense since the market has been dominated by the downside in the past few weeks. We could soon see a reversion to the mean.

Will this bring about a new bull market? Not yet. We need China to start to pick up and we need commodity supplies to sort themselves out. The worse it gets, the more stimulus we will likely see. I am fond of the stimulus-driven markets such as Japan and Europe.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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