Bubble, bubble, toil and trouble - A world in volatility once more

The past 6 months were almost crazy. If you are still lost at what is happening, let me give you a quick round up of what happened.

1. China encourages retail investors to join the market

• The chinese index never moves. So it was pretty shocking/interesting to see it rise for the first time and at such a rapid rate. Nothing that goes up quickly ends very well
• More greed fed into the market. students, teachers, farmers - you name it, they all joined the investment business and started feeling like genius when they made money. 
• High usage of margin trading. Increasingly, as the 'margin' in the main island was not enough, mainlanders went over to Hong Kong to open accounts for trading HSI shares.
• It all ended in tears when the chinese index started plunging, and swinging in volatile directions (Aug 24 Marked the Black Monday of China- http://www.bloomberg.com/news/articles/2015-08-25/chinese-stock-index-futures-slump-as-market-rout-seen-worsening)

2. China devalues the RMB

• This took the icing off the cake. Basically, all companies with strong exposure to china saw massive cuts from their market capitalization. The local banks (DBS, OCBC, UOB) were all not spared due to their exposure to that market
• Property companies all with high exposure to china and emerging markets all started seeing their share prices fall

3. Capital flight to safety

• Fear, whether rational or irrational is a dangerous thing. One may jump the gun way too early and miss out on buying at a good price. Greed on the other hand, makes one 'miss out' on selling at a high price
• Capital has left the emerging markets in search for safer assets - the recovery play of both USA and Europe is beginning to show the strain on the surrounding markets in the APAC.

We have 3 key lessons to learn here

• My finance professor once told me, as a trader one should be wary of two emotions - fear and greed. Master the two and you be unstoppable both as a trader (and an investor)
• When it is not based on fundamentals (i.e. prices moving up purely due to trading and not earnings growth), we need to be very wary
• Lastly, when those who do not normally want to invest start to invest, its probably time to get out.

Where do we go from here?

• Since the Black Monday of China, stocks have rebounded and seen a good run. While it is anybody guess which direction the market will go, I believe we need to watch out for certain macro factors that will impact overall portfolio return:

1. China policies and its key macro numbers (PMI and GDP growth)
2. USD and the impending interest rate rise
3. The return of commodity prices

Tips and what to buy

• Logically, the best plays would be interest rate rising (banking) and stocks with proxy to USD (e.g. Venture Corp, ST Engineering)
• The next best plays to pick up would be stocks with have absolutely no relation to the economy - this are the defensive battle pieces (e.g. CWT Ltd, ARA asset management, Sheng Siong and Singapore Shipping Corp)

Am I vested? Yes. 60% Equity / 40% cash and bonds

What am I bullish on? DBS Bank Ltd / Singapore Shipping Corporation (I have yet to accumulate a substantial portion) / ICBC