2013 forecast

The tough 2012 is gone. Not only did we turn into 2013, but also the “tough” part of 2012 did not come in the way many people have expected.

2012 started not too bad in Q1 but was quickly dominated a lot of bad news. In HK/China, there were disappointed earnings, company fraud, fear of hard landing, shallow banking, change of leadership…In Europe/US, there were prolonged debt crisis, exit of Greece, the collapse of Euro, Fiscal cliff in US, etc.

However, looking backward, as predicated by behavior economics, we always over-estimated the probability of these events and some of us missed the big rally in 2012, whether it being equity, fixed income, or others.

Going forward, I believe 2013 is a tough year.

Decision making is quite simple in 2012 for people who believe in mean-reversion. Economy, earnings, valuation will return to the long term average. Plus, with so many “risks” being discussed everyday, the chance of them coming true is skewed, and make equity market more attractive.

For 2013, I am bullish but it is much more complicated. First, most people are bullish, or at least much less bearish than 2012. Second, most of the “risks” in 2012 “seems” gone and any chance of them coming back, or “seems” coming back may come as surprise. Third, if the market continues to rise, as a value investor I will face fewer investment opportunities and the decision to hold, sell or short would be really challenging.

After a few weeks of thinking, I still have no idea what 2013 will look like. But with uncertainty and no solution, I decided to do 3 things: read broader, think more and do less.

PS: When formulating my 2013 forecast, I was reading past newspaper (HKET) dating the first few days in the past few years. Interestingly, there was always an article that pull together HSI forecast from various source. And below I summarized them in a chart. Well, I found some patterns there, however, they may be just noise.


Example of 2010 forecast from HKET:



27 Responses to “2013 forecast”

  1. 1 Anonymous 2013/01/10 at 8:46 pm

    Long time no see your new post wor, Danny!!!

    Hope everything is fine !!!

    Thx for the detail and with heart analysis again!!!



  2. 2 Manfred 2013/01/14 at 9:54 am

    Hi, good to see you back.

    There are a number of Chinese company listed now here in Germany, and some have extremely low valuations. I am aware of frauds with US listed companies but I find it difficult to make up an opinion about these companies, perhaps you have one as you are closer to their market. A comment would be appreciated very much.

    For example, a new listing from last year is Ming Le Sports

    Their data is almost too good to be true. PE < 2, high revenue and profit growth despite sector crisis and they are supposed to declare a nice dividend shortly.


    Their business appears to be real, they have over 3500 outlets, I just have no clue what could be wrong with them. Despite those outstanding numbers, there has been a seller in the market and share price has not yet reached the gong public price.

    • 3 Danny Yung 2013/01/17 at 12:31 am

      Hi Manfred,

      I took a quick look on the company you mentioned. There is no conclusion about it but below are few points for reference:

      1) Its competitors listed in HK have stores in the range of 5,000-10,000
      2) It uses distributor model, same as others, which is easy to “record” sales by passing through to distributors but usually with official or unofficial buyback commitment, as seen by those listed in HK
      3) Its sales/profit growth trend is very similar to those listed in hk, and they are now facing sales decrease of 20%+ and profit drop of 30-50% or even loss

      You may consider some very conservative valuation, few months ago, some of those smaller sportwear players in HK are trading at 10% historical yield and one is trading at less cash on hand


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January 2013

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