PETALING JAYA: The imminent Federal Reserve (Fed) interest rate cut and US elections next year are expected so spur global investor interest in American companies despite the global economic uncertainties, a local stock market expert says.
Beyond Insights Sdn Bhd director and chief trainer Kathlyn Toh said investing in US companies listed on the S&P 500 is “still a better choice” regardless of the growing tensions caused by the current trade war.
“Right now, people are taking profit in the US stock market, which is healthy because it has been overstretched,” she told StarBiz on Saturday following a half-day seminar titled “How to accelerate your stock market returns safely.”
“If you look at the whole world, everyone is trying to cut interest rates. When you cut rates, it will make the US dollar stronger and the US is still the reserve currency.
“There are the big six currencies. First is the dollar and then the euro.
“But there are uncertainties in Europe due to Brexit. So right now, the US is a better choice,” Toh said.
She added that the Fed’s rate cut is necessary to address the current global economic uncertainties.
“Even though the US economy is doing well, there is global uncertainty that warrants a more easing policy, which means they will either keep the interest rates flat or reduce it.”
On July 10, Fed chairman Jerome Powell in his remarks to congress all but confirmed he will cut interest rates this month.
During his speech, Powell reaffirmed the Fed’s concerns about economic prospects and that it was ready to take appropriate measures to maintain the recovery momentum.
Barring any strong headwinds, Malaysia is likely to keep its benchmark overnight policy rate, which was maintained recently at 3%.
AmBank Research has placed a 60% chance of a US rate cut of 0.5% this month.
Toh noted that the US elections next year would also bode well for the US equities market.
“Usually during the election years, the ruling government will want the market to do well so that they can get re-elected. This means that the people will be able to enjoy a better economy.
“As we come closer to the elections, there will be poles but if the Democrats are doing better ratings than Trump (Republican party) prior to the elections, then the market may not do so well.”
Commenting on the current US-China trade war, Toh said semiconductor companions have been the worst-hit.
“Trump has US$300bil (RM1.2 trillion) potential tariffs he might want to impose, but I don’t think he will likely do that mainly because his own US voters, the American companies are complaining about that because it will also hurt their industry.
“China, meanwhile, is not doing well. Its gross domestic product is not growing and its stock market is not matured yet and you can’t find a lot of reliable audited reports and if you want to invest there, there are capital controls.
“So even if there are good deals there, it’s not so easy because there are more risks.”
Organised by Star Media Group Bhd and Beyond Insights, the half-day seminar provided participants with insights on how to invest in companies with a strong track record and great growth potential, using a comprehensive four-step system that covers all critical parts of stock investing and trading, including risk management.