Market Outlook: 01-09-08

Robert Hsu, January 09, 2008

The final numbers are in, and 2007 was a tremendous year! But the New Year hasn't started out so well for the U.S. markets as the S&P 500 is down 5.2% as of yesterday's close. Downward pressure is coming from weak economic data and more housing/financial industry woes. Not helping matters was last Friday's U.S. employment report, which posted its smallest increase in more than four years for December as the housing downturn continued to take its toll. Meanwhile, the jobless rate hit a two-year high, indicating a weak finish for the U.S. economy in 2007. The unemployment rate jumped to 5% -- its highest level since November 2005 -- from 4.7% in November.

Just like the U.S. stock market, most Asian stocks are down in the New Year. The MSCI Asia Pacific Index dropped 0.5% last week to 155.47. Japan's Nikkei 225 Stock Average plunged 4% to 14,691.41, a 17-month low. Pulling down that index was Japan's serious structural and demographic problems. Outside of Japan, Asian markets fared much better. Hong Kong's Hang Seng Index is down less than 1% since the year began.

A Quarter to Remember

As the first earnings season of 2008 approaches, we're starting to see a divergence between the U.S. stock market, which is suffering from deteriorating earnings, and Asian stock markets that continue to enjoy strong earnings growth. Despite a 2% sell-off in U.S. stocks yesterday, last night Chinese stocks in Hong Kong rallied over 2%. Going forward, I expect Asian stocks to be driven more by strong Asian economic growth and corporate earnings instead of further problems stemming from the U.S. economy. This is excellent news for our holdings, and we'll continue to deploy cash as needed for new investment opportunities and take money off the table when appropriate.

Speaking of earnings, the announcement season kicks off this week. Wall Street analyst consensus expects Q4 profits for the S&P 500 to decline 9.8% from a year earlier, after dropping 4.5% last quarter. We could see the worst overall decline since 2002, a big shift after 14 straight quarters of double-digit percentage gains that lasted through 2006. Meanwhile, the U.S. economy likely grew around 1% in the fourth quarter after expanding by 4.9% in the past three months. There's definitely an economic slowdown in the U.S. Mainland Chinese companies in Hong Kong, on the other hand, are expected to report 25% to 30% earnings growth in Q4. This is very impressive growth, and I think you should get in on the profits that my Asia Edge subscribers are making. Become a member of Asia Edge to learn more about the best way to play the growth in Asia.

To get the latest updates on the market and which stocks Robert Hsu is recommending now, join Asia Edge.

Sponsored Links

What's happening in the world's major foreign markets right now? Will current events affect the stocks in your portfolio? Read InvestorPlace Asia's Top Stories to find out everything you need to know in order to stay on top of global economic news.

more...

Every country has its own special customs and traditions. Being familiar with a country's culture can often make a difference in whether you gain or lose from investing in its stock market. Check out our culture section to learn more about the societies of the world's fastest-growing emerging economies.

more...

There's a lot happening around the world today, and it's important to know how it's affecting your investments. Watch the latest videos covering important Asia topics!

more...