Will prediction of a fall in Dow/bitcoin come true?

WHILE not many believe the Dow Jones, pitted against bitcoin prices, will fall, the warning may be something to look at.

“The predictive power is in the chart (which shows bitcoin prices in an eight-week lag versus the Dow) although no one can fix a causative link between the two,’’ said Pong Teng Siew, head of research at InterPacific Securities.

Since August 2016, the peaks and troughs of these two have almost coincided.

Bitcoin hit its peak on Dec 16, 2017.

“If the Dow drops, Bursa is likely to follow suit.The foundation of this rally is shaky in the first place.

“Several key sectors – telecommunications, healthcare, plantations and properties – have been broadly bypassed in this rally.

“Telecom profits seem to be retreating, healthcare remains expensive although there is no visible growth, palm oil prices did not rally in the fourth quarter as they usually do, and there is a glut looming in the higher end residential and commercial sector.

“Technology, the bulwark of this rally may get shaky after too long and too strong a ringgit rally. The least highly regarded emerging market currencies have become the most sought after, indicative of late cycle charateristics for global markets.

“Mark Mobius is underweight on Malaysia but believes it will have a good market this year. Maybe that will be true for a part of the remaining period of the year,’’ said Pong.

Whether the US favours a strong or weak dollar will not likely change ringgit fundamentals.

While US Treasury Secretary Steven Mnuchin had seemingly advocated a weaker dollar (which he later said was taken out of context), President Donald Trump said he wanted to see a strong dollar.

“The strong dollar mantra has been consistent. Fundamentals and rate differentials will have the biggest impact.

“For now, it looks like the trend for a weak dollar although there may be some rebound,’’ said Hor Kwok Wai, the chief operating officer (global markets) of Hong Leong Bank.

“The apparently conflicting statements have the effect of slumping the dollar and benefitting other majors, Asian and emerging currencies. Bottom line is uncertainty over the current administration’s dollar policy.

“As for the ringgit, fundamentals and flows are supportive of it,’’ said Suhaimi Ilias, the group chief economist of Maybank Investment Bank.

“Even with three rate hikes anticipated for this year, the dollar remains weak as investors bet on a synchronised strengthening of the world economy, which tends to benefit other global currencies.

“Optimism on growth and strong external support has drawn funds into Malaysia which has one of the deepest debt markets in the Asia Pacific. This has become a key consideration for foreigners investing mainly in government bonds,’’ said Nor Zahidi Alias, chief economist at Malaysian Rating Corp.

“A strong dollar may impact commodity prices and flow of funds. It is reasonable to stabilise the dollar/ringgit exchange rate at this level,’’ said Danny Wong, the CEO of Areca Capital.

Are tariffs on solar panel and washing machine imports the start of Trump’s protectionism policies. Tariffs on solar panel imports to the US are a swipe at an industry that drew in US$161bil of investments globally last year and is dominated by companies in China, said Bloomberg.

“It is still too early to judge (if this will start a trade war) as the ban involves non-major export items,’’ Areca’s Wong added.

“We definitely have to watch this space but at this stage, the spillover of the trade spat will probably be restricted to isolated cases,’’ said Vincent Khoo, head of research of UOB Kay Hian.

“A sharp escalation of US trade protectionism remains a key risk for global trade. Any unwarranted disruptive trade approach by the US and followed by counter measures from partners would be detrimental to global trade,’’ said Lee Heng Guie, the executive director of Socio Economic Research.

“Emboldened by the delivery of tax cuts last year, Trump’s next move would involve another key election promise to tackle the huge trade deficit this year. There is the risk of punitive trade policies on partners with whom the US has trade deficits with and counter measures by the affected parties,’’ said Suhaimi of Maybank.

The global economy is predicted to grow 3.7% this year, the fastest since 4.3% in 2010, a Reuters survey of 500 economists showed, while the International Monetary Fund is forecasting growth of 3.9%.

Columnist Yap Leng Kuen is keeping her fingers crossed.