Sunday, 19 March 2017

Invest Made Easy - Market Prediction and Investment Opportunities for 2017

With 9 more months to go before the end of 2017, I believe there is still an abundance of opportunity to invest for the average investor. In this post, I will be highlighting the general market outlook for 2017, key opportunity areas to invest and build a general investment portfolio for 2017. Now let's get started!

Criteria to Check Before Investing in 2017
1) Predicted Health of the World Biggest Equity/Stock Market 
The very first criteria an investor should look into before investing is to check the predicted health of the world largest equity/stock market. By that, I am are referring to the growth forecast of the US stock market for 2017. Most investors including myself will refer to market predictions of the S&P 500 Index which is made up of 500 largest US companies in terms of market capitalization.

Now in this post by the Business Insider, the top nine (9) Wall Street Firms are predicting that the S&P 500 will achieve a single digit percentage gains for 2017. JP Morgan is the most bullish among the 9 firms by making a prediction of +7.20% gains.
Wall Street Firms prediction for 2017 (as of 10 Dec 2016)
With all 9 firms predicting a positive outlook for the US market, we can safely put a tick on this first criteria.

2) Current Economic, Market and Investor Sentiment towards the World's Largest Economy
Once again the United States is used as our reference point for investors to regularly check the following key items:
  1. Changes of the country's economic health
  2. Current health of the S&P 500
  3. Current investor sentiments towards the stock market
For this very purpose, we have actually create a reference site called "The Guided Investor" which allows any investor to check the above mentioned statuses, updated on a monthly basis. Shown below is the current statuses of the three items as of 20th February 2017:

The Guided Investor - updated as of 20th of February 2017.
The next update is scheduled on the 20th of March 2017
There are 3 key items and 9 sub-items listed in The Guided Investor:
  1. Stock Market Indicator
    • Shiller Cape
    • S&P 500 12 Month Trailing PE
    • S&P 500 EPS
  2. Investor Sentiment Indicator
    • Volatility Index Indicator
    • NYSE Breadth Indicator
    • American Association of Individual Investors (AAII) Sentiment Survey
  3. Economic Indicator
    • Manufacturing PMI
    • Services PMI
    • Unemployment Rate
Tip : If you are new to any of the items listed above, I would strongly urge that you look it up and try to understand how the definition how each item works before investing. 

Each sub-item plays an important role in telling an investor the latest health of economy and stock market. In The Guided Investors, each sub-item have green or red indicators. Green indicating optimism and red indicating caution. As more sub-items turn red (except for the AAII Sentiment Survey), an investor should start to be more cautious towards his or her investment exposure in the equity sector.

Now as of February 2017, all 3 sub items under the Stock Market Indicator are indicating a warning/caution sign. Never the less, sub-items under Investor Sentiment Indicator and Economic Indicator are still looking optimistic. Finally with 6 out of 9 sub items still looking optimistic as of 20th February 2017, I will give this criteria a passing tick!

Market Outlook for 2017
1) What the Experts Say?
In order to get a better overview of the what the experts have to say, I've compiled information of the market outlook from reports produced by Blackrock, Goldman Sachs, Russel Investment and Morgan Stanley. Each of these reports capture the market outlook for Japan, Emerging Market, Asia ex Japan, United States and Europe, of which I have summarized the findings in the table below:

Market Outlook for 2017
The assumption made for the table above is that as long as there are two (2) reports indicating positive outlook for a particular area, an investor may consider that area fit for investing. In this case, Japan, Europe and Emerging Market are the potential areas identified. 

2) What our Country Indicators Say?
This time I am bringing in another section of "The Guided Investor" called Attractiveness by Country. Under this section, the attractiveness to invest into a particular country is updated on a monthly basis based on our evaluation of 4 key criteria:
  1. Manufacturing PMI
  2. Services PMI
  3. Shiller Cape 
  4. GDP Growth Projection 
The evaluation is then translated into percentage (%) basis. The higher the percentage given, the more attractive the country is for investment. Do take note that percentage changes on a monthly basis and we recommend investors to avoid investing into a country that is rated below 60%. Now here's how the attractiveness to invest by country section looks like under The Guided Investor:

The Guided Investor - Attractiveness to Invest by Country
as of 20th February 2017
As of 20th February 2017, China, Australia and UK are the most attractive to invest into with scores of 80% and above. Germany, Japan, South Korea and Thailand potential as well with 75% and above rating. 

Latest Update : Based on the latest update from The Guided Investor (as of 20th March 2017), China and UK are the most attractive to invest. Australia's attractiveness has been reduced to 66.67% therefore dropping out of the list. Germany, Japan, South Korea and Thailand remain in the 70+% attractive rating.

Do take note that the percentage rating for countries will change on a monthly basis. Therefore it is extremely vital for an investor whom follow the recommendations of The Guided Investor to check for updates on a month basis. 

Investment Portfolio for 2017?
The Three (3) Questions!
While we all would like to build an awesome investment portfolio, one must oneself these key questions first:
  1. What is my risk tolerance? Knowing your risk tolerance will help you determine how many % of you money should be allocated for risky investments such as equity.
  2. What is my investment horizon? Is it 1 year? 3 Years? 10 Years? Knowing how long you intend to invest before needing to use that money is as important as knowing your risk tolerance. Simply put, the longer your investment horizon the more investment risk which you can take. 
  3. What strategy will you use? Now this is another question which have several sub questions to it. What is your entry and exit strategy? How much gain is enough for you? What would you do if your investment is suffering significant losses? 

To help you answer these three questions (which I strongly encourage that you do), I would suggest that you look up Unit Trust Made Easy

Now assuming that you have clear answers for all three questions, let's move on towards building an investment portfolio for 2017.

The Assumptions

The Recommended 2017 Portfolio
Referring to the above assumptions as well as earlier highlighted market outlook here is how our "active" investment portfolio for 2017 as of 20th February 2017 would look like along with remarks and justifications:

Recommended 2017 Portfolio as of 20th February 2017
Latest Update : With Australia dropping out of the Attractiveness to Invest list. We have updated our recommended 2017 portfolio as of 20th March 2017 as per below:
Recommended 2017 Portfolio as of 20th March 2017
Some tips on how to maintain this portfolio:
  • Monitor the health of the World Biggest Stock Market using The Guided Investor platform
  • Monitor the changes of attractiveness rating by country via The Guided Investor.
  • Keep up to date with key events/news impacting the political and economy of the countries which you have invested into
  • Use an online platform to purchase unit trust funds, especially during promotion period. These low sales charge for unit trust funds will help you see quicker gains.
  • Have standby cash (liquidity) parked under Money Market which would allow you to invest into new opportunities created during a market correction (A 10-15% drop in the stock market index of a country is considered as correction)
  • Exit an investment when is it no more attractive or when it has hit your targeted returns.
There you have it, Invest Made Easy's market prediction and investment portfolio for 2017. Do be reminded that this is only a general portfolio constructed based on all the information and indicators shared earlier. 

As an investor, one should be flexible in making changes and tweaks to your own investment portfolio. Research and knowledge will help you improve upon your portfolio. As a self investor, always remember that investing is a continuous learning journey where one can only get better with self practice and failures. 

Just to add on, my next post will be on the recommended funds to invest based on our constructed 2017 portfolio. So stay tune for future updates and don't forget to share this post with your family and friends!

Cheers and Happy Investing!

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