After the sharp rally between July and early November, global equity markets have been in consolidation mode for almost five weeks. This range-bound trading will likely continue for another few weeks and the uptrend will probably resume early next year.

It is noteworthy that although a number of data are still positive, the market breadth (NYSE advance/decline line) is struggling to break above its recent peak. For our bull market hypothesis to be correct, the market breadth will need to break to a new recovery high. Fortunately, a number of other indicators such as the new 52-week highs, new 52-week lows, the VIX, LIBOR, Ted-Spread and the yield curve are favorably aligned (like the stars) and this suggests that the ongoing bull market will continue for several more months.

The economies of the developed world could remain sluggish for years, therefore there is no point in allocating capital to industrialized nations. The only glimmers of hope we see in the developed world are the large-cap, conservatively financed multi-nationals (blue chips), which are trading at extremely reasonable valuations. So, these companies may be an inexpensive way for investors to gain exposure to the fast growing developing world.

Over in the developing world, the stock markets of China, India and Vietnam are still favored. It is notable that over the past few trading sessions, the Vietnamese stock market has surged and at 10 times reported earnings, Vietnamese stocks are being given away. Last but not least, the recent pullback in the Shanghai Composite Index has made some of the Chinese companies even more attractive. I continue to have faith in the Chinese consumption story.

In the energy patch, the price of crude has pulled back somewhat but it is still trading around $90 per barrel. Every near-term pullback could be a wonderful buying opportunity for investors. It is my firm belief that every investor ought to have an overweight exposure to energy. If the price of oil surges, upstream oil companies and the oil services stocks will be the prime beneficiaries. Furthermore, the renewable energy stocks (which are currently trading at throw away prices) will also attract investors' interest. Therefore, investors should ignore the short-term noises and focus on the reality of "peak oil". Our research has convinced us that the global supply of total liquids will rise by no more than 5-7 percent and this is reason enough to prepare for an epic energy crunch.

As far as precious metals are concerned, the sector is caught in a trading range. Technically, the price of silver should decline by at least 20 percent but a powerful bull market can stay overbought for weeks. In any event, long-term investors should simply hold on to their positions and utilize any price weakness as a buying opportunity. I feel that the dominant precious metals mining stocks are undervalued.

Finally, turning to the government debt markets, yields are rising and bond prices are declining in most nations. Despite US Federal Reserve Chairman Ben Bernanke's money printing efforts, bond investors are not behaving themselves and this should come as no surprise to our readers. Although the bond market has now become temporarily oversold, I continue to believe that the great bull market ended in December 2008 and we are now in the early stages of a secular bear-market. Remember, mean reversion is one of the great truisms of capitalism and no asset class stays up forever. Therefore, any near-term revival in bond prices may turn out to be a good selling opportunity.

(HK Edition 12/18/2010 page2)