Recently, my mum has re-emphasized to me that the bull market is the result of DT being the US president.
This is the 3rd time I heard it from her. I had always brush her off as I don’t believe that is the reason.
However, my sudden enlightenment recently made me felt that DT could really be the reason for the current bull market.
The bull market could mainly be due to DT’s protectionism policies that created a better economy for the US citizens. More companies hiring US citizens, more jobs, more pay, more spending, etc…
Furthermore, the current tax rebate policy will allow corporations to report EVEN better earnings report this year. Do note that 2017 is supposed to be a very good year for many companies.
Thus, when the US market reacted positively to DT’s policies, the global markets also reacted the same way.
A booming US economy will also have an effect on HK market. My research of the HK market made me realised that there are still many companies listed in HK (but not necessary operating directly in HK or China) that are manufacturing for the major brands in US. One such example is Win Hanverky Holdings Limited.
This has also led to SEA booming as well due to the large trading relationship that China and HK have with SEA.
Hence, this following chain reaction emerges:
Higher spending in US >> Earnings Growth in US companies >> Manufacturing Firms in HK/China start getting more orders >> Earnings Growth for these Manufacturing Firms >> Suppliers and Supporting companies in SEA get more orders as well >> Leading to earnings growth as well for these firm.
Do note that there could be more interconnecting chain reactions. But the above is just a more direct relationship that I foresee.
With so many companies reporting exceptional earnings growth while the share price remains constant, the PE ratio will become relatively low and be seen as undervalued. In order to bring the counter’s PE ratio back to historical norm, the share price will be pushed up as well.
So KABOOM! The bull started to run really fast and the bull market is became alive!
Do also read the article where I talk about money supply and interest rate too.
But what could cause Bull run to end? The answer could most probably be excessive inflation in US or the eventual higher Interest Rate by Fed.
These actions above will either bring down individual purchasing power (as the final product gets too expensive) or higher saving resulting in lesser spending.
Being retail investors, we can only wait and see what happens.