The Risk Of Short Volatility Is Volatile In The Stock Market.

It has been more than five months since Trump was elected president of the United States and injected new impetus to the bull market that lasted for eight years.

The performance of the global stock market is in line with the expectations of the market (including US): after years of gloomy economic growth and economic growth, business and consumer confidence indicators and corporate profits have improved, supporting the rise in stock market, high risk corporate bonds and industrial goods, but the decline in government bonds.

Trump's statement about the strong dollar and low interest rate policy almost overturned his promises made in the previous campaign, which led to an uproar in the global market.

The Trump team recently proposed in the US Congress to replace the "Obama medical bill" with the new health insurance act. However, under the opposition of Republican members, it became the first resistance to the momentum of inflation.

Investors began to question.

Can we make progress in promoting the main elements of inflation? Such as reducing taxes, revoking commercial regulation and increasing infrastructure spending.

Should investors suspend investment now or will inflation continue? We believe that the US tax treaty will be reached in the future. It is only a matter of time. In particular, the Republican Party is committed to launching projects to increase revenue in response to measures to stimulate the economy, and in the long run, it can balance the tax cut.

Therefore, although it is the end of the US business cycle, we still believe that the inflation trend will continue for some time.

So far, Germany's fiscal policy debate seems to be pushing the euro zone to adopt a more lenient policy.

Once the country releases fiscal easing policy, it will bring support to the region's economy.

We also see signs of recovery in Asia, while Russia and Brazil are in the process of going through years of recession.

In China, economic stability caused by policies is obviously helpful in this regard.

For the medium term (6 to 12 months), we expect the stock market to perform well.

Therefore, the global stock market is still our preferred asset class.

Earnings growth is expected to be strong, from the "groping ahead" mode to "inflation inflation" showing that there should be no major changes in the future.

However, the shift from extreme loose monetary policy to the valuation of some regions shows that the stock market's growth will be driven by profit growth rather than price earnings ratio expansion in the future, which is a normal phenomenon after the cycle.

In addition, monetary policy still brings support and momentum remains strong.

The euro zone is our favorite stock market.

The valuation is relatively lower than that of the United States, but the local economic outlook is improving, coupled with the market's worries about trade war, which is expected to increase the profit growth in 2017.

There are signs that Germany's consumption is rising, and the euro's earlier weakness has led to an increase in exports in the euro area, suggesting that the revival of local and external dynamics may benefit the stock market.

We also value Asian (except Japan) stock market.

The improvement of the US dollar should be a positive factor because the stabilization of the US dollar means that the local policy can be maintained loosely, so that the local may benefit from the inflow of foreign portfolio.

The valuation is reasonable and profits are expanded by double figures. The area is still held low by institutional investors.

In Asia, India and China (especially the "new economy") are still our favorite markets.

South Korea is also likely to be beneficiaries, as the political uncertainty has been reduced, the country's massive investment in innovation and brand building and Global trade growth have generally increased.

As for bonds, we obviously prefer corporate bonds to government bonds, especially those that are not too sensitive to raising interest rates.

Because with the gradual expansion of inflation and the gradual withdrawal of loose monetary policy by the Federal Reserve, the interest rate of developed market government bonds may gradually increase.

Meanwhile,

It may improve.

Therefore, we are optimistic about the US dollar floating rate preferred bond and the developed market's high interest rate.

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Although there are significant credit risks in the two asset classes, the yield is relatively high and is not very sensitive to the rise in interest rates.

In fact, priority bonds provide floating interest, which should be benefited from higher yields.

However, we are more cautious about Asian bonds.

In the Asian dollar market, the issuers of mainland China and Hongkong China account for the majority, which puts investors at higher risk.

Although China tightens foreign exchange control and gradually increases interest rates to effectively curb capital outflows, if the market becomes more worried about China or the decrease in capital flows of Chinese investors may lead to a marked decline in the market.

Moreover, the valuation of Asian high interest bonds looks too high.

Therefore, we prefer investment grade bonds to high-yield bonds, and prefer high quality bonds in Asian high interest bond markets.

In the short term, stocks and other high-risk assets may be weak, especially at this time, as this is a seasonal trend and France is about to hold an election.

Even though we expect that the "doubtful Optima" in some European countries will not gain power and damage the global or even regional economic prospects, but because of the swaying of the ballot papers, the market will obviously have the risk of short volatility.

In addition, some market indicators, such as the extension of asset classes, indeed show the orientation of investors.

However, the fund managers' survey shows that there is still a large amount of cash left behind, which is the clue of the further rise of the stock market.

Interestingly, we see that most investors still focus on income generated assets rather than purely growth oriented assets.

This suggests that once the growth assets are receded, the decline will be relatively limited and will be a good opportunity to enter the market.

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