Still can't believe markets did not correct after the end of QE3 last year. Expected that the end of QE3 would herald the same market reaction as when QE2 ended. Well looks like history sometimes doesn't repeat itself. The only explanation would be that as QE3 ended, both Japan and European central banks started their own QE like programs. This could have maintained the global liquidity that was flowing into stock markets.
However this time round, it does seem like the imminent raising of interests rates by the USA FED is having an effect on markets. That together with economic data showing a slowdown in China, contraction in Japan and not much recovery in Europe, is probably causing a flight to safety, namely the USD and Gold.
So what's so great about STI going below 3000 points?
For the value investor, as stocks fall, more and more value emerges. Especially when sharp drops happen in a short space of time and fundamentals of companies remain not too bad, if not unchanged. It also means previous stocks which may have risen to fair value and profits taken are now once again showing attractive valuations. On a larger picture basis, an investor who has taken profits when markets were high, now has a chance to deploy his cash back into the market. As it is almost impossible to time the bottom during a stock correction/crash, a simpler approach would be to just mechanically allocate capital into the market as it retreats.
At the rate things are going, STI seems like it will be doing a repeat of 2011. Currently it is off from peaks of 3500 by >10% already and might be down 20% pretty soon. It seems that most of the market action of blue chips selling off seems to be due to fund outflows by ETFs tracking the emerging markets. Looks like for now, the confidence in emerging markets has been lost and it might take a while before confidence is restored.
Just curious. What's the ETF in SGX that is tracking the emerging markets ?
ReplyDeleteLyxor EM Mkt US$ is the one i found on sgx.com list of ETF with EM in it...
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