We are positive on oil, and stocks related to oil, and natural gas transportation, and some stocks in alternative energy. Oil may have some volatility in the next few months, but as supply and demand gradually balance, 60 dollars per barrel is soon or later in the next year. It can get more expensive in medium terms, but it may take a very long time to get beyond 80. Oil’s supply and demand balance will be an extremely slow process with very large back and forth volatility. In six months’ time, the situation should be much better for suppliers. So one may have to tolerate some volatility if one buys in now, but the return in medium term can be very high.
We still believe as long as the US do not hike rates, it won’t have recession until next year end or even the next two or three years. In this case, US stocks still have room to go up. If US or global stocks drop, it is a buying opportunity. In contrast, gold’s opportunity has ended in the short term. The US Fed still want to hike rate. But if they are not crazy, they should not push the US economy to recession, and any hike should only lead to corrections around the end of 2015 and the start of 2016. Then the markets will bounce back, saved by the Fed. This can create very good buying opportunities. Although there will be many events rocking the world, as long as governments can control the situation eventually, there should not be recession risk, and any big drop is a buy opportunity. High tech, and especially oversold oil exploration and production companies, are relatively good choices to buy. The devaluation pressure of RMB may be reduced for a while, but RMB should still devalue a lot in the medium term.
From the bottom at 2600, we are persistent in our positive view about Chinese stock markets. Originally I thought Shanghai index can drop to around 2500 in April before the bounce, but it only dropped to 2700 before the bounce. We think Shanghai index can reach 3500 in the next six mouths, and then stagnate with big swings for quite a while.
In three to five years’ time, the chance of US recession is great. The last US recession ended about seven years ago. The chance without recession for 10-12 years is very small. During the next US recession, global economy may have a great recession too, and global markets will drop sharply, Chinese economy will slow down sharply. In 5-10 years, reported Chinese GDP growth will surely drop to 2-3%. In 10 years, Chinese GDP growth likely will drop to close to zero.