[Learn Premium] Chinese market rally, Continued US market bullishness and Forex Risks
Hi Moo-ers,
Today I will be answering some questions that were asked in the Learn Premium Group. This group was created by the moomoo educational team, designed to help you learn about investing. Here, you'll find daily market updates and premium investment courses to help you build your trading strategies.
Of course, you can also ask questions on topics that interest you, and group admin @Cici will collect them for me to answer. Welcome to join and engage with thousands of like-minded investors in the group!
Thank you for the questions this week! Let’s start with the elephant in the room – the state of the Chinese stocks rally. @104662941
The short answer to the question is: Please read this article on Traders' Edge! It would only take up 3-5mins of your time!
Otherwise, I would say that it is never wise to shift all your capital over to the Chinese markets just because the government is doing a round of stimulus. Perhaps you can enter with a smaller amount first to "test water" and gain slight exposure.
Chinese markets aside, the US market has continued to receive plenty of attention from investors, with S&P 500 and the Dow Jones Industrial Average hitting new highs last week.
That’s not surprising, given the depth and liquidity in the US market. Regardless of what’s happening in other key global markets, you can be sure that interest in the US market will remain strong.
But given the multitude of offerings there, investors would be forgiven for feeling lost and not knowing where to begin.
The US markets is a very developed and mature market with liquidity. Generally, a good guide for me is to look for stocks with larger than 1 million turnover. This would ensure that your chosen counter has the necessary liquidity should you choose to exit your position in a haste.
As for using options, I would recommend it for the more experienced traders. It can also be used as a way to hedge one's position as well. For the beginners, you can start by reading up more and try using our moomoo options paper trading to get a feel of how options should be used.
Tech stocks are also coming into focus, with the upcoming earnings season just around the corner. This week, I have a question on Meta from @102649687. The momentum for Meta on the Monthly and Weekly chart is definitely bullish. As long as price is holding above 536.80 support, further upside is expected towards 640.70. If price comes back down and shows a daily candlestick close below 536.80 support, it would invalidate the bullish view.
Meanwhile, back in our home market of Singapore, REITs have come into focus lately with following first interest rate by the US Federal Reserve, giving a boost to the sector as investors bet that more interest rates are in the works, which would mean lower borrowing costs for the REITs, which would then eventually translate into high DPUs for unitholders.
But the initial bullish boost has somewhat calmed down, with the the recent pullback we are seeing now mostly due to the investor sentiment. As US Fed Chair Jerome powell also said that rates will continue to come down but it depends on the health of the labour market.
Further in the past two weeks, we are seeing a shift in capital allocation as traders shift more money to buy into the Chinese market rally.
Overtime, however, REITs will stand to gain as long as rates continue to come down lower.
Some factors to look at when investing in REITs would be: 1) the type of business of the REIT (managing, developing, mortage or equity) as well as 2) the underlying assets of the REIT (office, residential, data centre)
Watch Out for Currency Risks
And finally, we also have had a couple of currency related questions this week. One interesting question from @mr_cashcow is on the yen carry trade, with a user wondering if the yen carry trade is now dead in the water.
So, a carry trade is essentially borrowing low interest currencies (in this case the JPY) and then investing it in assets or currencies (in this case USD) that pays higher interests.
As of now, the JPY interest rate is still lower than the USD. As such, the JPY carry trade play is still very much alive. However investors should still keep a look out as the BoJ looks towards eventually raising rates while the US Fed continues to pursue further rate cuts.
The policy divergence will eventually narrow the interest rate spread between the two currencies and make the carry trade strategy less profitable.
Beyond the carry trade, investors should also be mindful of the risks when dabbing in the foreign exchange markets @Discern. Forex is generally a high risk asset class to trade. There are many factors that affects the strength of a currency. One other way of mitigating currency risks is to use currency ETFs. Example, if you are holding onto too much USD, you can look for an ETF that provides short exposure to the USD or an ETF that is inverse USD focused.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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mr_cashcow : Thanks for answering my question about yen carry trade![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
ZnWC : Thanks for your answer![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
103916021 : k
Discern : Brilliant, Isaac! Noted pro advice. Could you recommend an ETF or an inverse ETF to recommend USD hedge?