Have You Forgotten about the Last Few Corrections?
Since the start of the mega bull run in May 2003, the market has ups and downs. Investors are the most worried during any correction. Many wanted to pull out instead of taking the opportunity to buy into a bargain. During those times, the reasons for the correction were splashed on the headlines of major newspapers. People are talking about it all the time. The problem is, when the market starts moving up again, people forget the reason for the correction. Take a test to see if you can remember the cause of correction over he last few years:
MSCI Asia Ex-Japan Index
1. March 04 to July 04, Worst Market Drop:- 21%
2. Oct 05 to Nov 05, Worst Market Drop:- 8.8%
3. May 06 to July 06, Worst Market Drop:- 19.7%
4. March 07 to April 07, Worst Market Drop:- 9.8%
5. July 07 to Today, Worst Market Drop:-16.3%
(Check the results below)
So, How many did you get correct? My guess is that you would have forgotten about the causes of market correction other than the recent one in March. I will make another bold statement: That you will forget whatever that has happened today in a year time.
The Climate of Fear
As you can see, the correction we had so far was not the worst that we have encountered. The sharp correction we are encountering is as a result of irrational fear and apprehension. The main reason for the correction is not because of the subprime securities bankrupting banks and financial institutions. It is the fear of lending money to fellow financial institutions that resulted in the irrational drop. Without credit, companies cannot expand their business, home buyers cannot get a mortgage. Imagine the disaster that will result! The whole climate of fear will be eliminated once financial institutions figure out the impact of their portfolio of subprime securities and how it will affect their bottom-line. Another event to look out for will be the US Federal Reserve meeting during early September. Should the Fed decide on an interest rate cut in an attempt to revive the US economy, we will see the stock market rise to new heights.
Other Good News
One good news is that Asian financial institutions are relatively unaffected by the subprime securities. The other good news is that the China government has decided to allow retail investors to invest overseas. The first stop will be Hong Kong. With a huge influx of wealth from the new middle class of China, Hong Kong stock market will be given a big boost. The spillover effect will definitely benefit the rest of the Asian markets,especially Singapore, which has a large listing of china shares. In fact, the Hong Kong stock market is currently the best performing stock market, with the Hang Seng index hitting a historical high despite with a global equity correction going on.
This is one of the good times to enter the market. Client with spare cash should dollar cost average down. One year later, we will probably be worrying about another issue which will cause another correction. By than, we should have forgotten what has happened today.
1. Oil Price Hike, 2. US Inflation Fears, 3.Record oil prices, persistent rise in interest rates, 4.China stock market crash, 5. US Subprime Meltdown
Since the start of the mega bull run in May 2003, the market has ups and downs. Investors are the most worried during any correction. Many wanted to pull out instead of taking the opportunity to buy into a bargain. During those times, the reasons for the correction were splashed on the headlines of major newspapers. People are talking about it all the time. The problem is, when the market starts moving up again, people forget the reason for the correction. Take a test to see if you can remember the cause of correction over he last few years:
MSCI Asia Ex-Japan Index
1. March 04 to July 04, Worst Market Drop:- 21%
2. Oct 05 to Nov 05, Worst Market Drop:- 8.8%
3. May 06 to July 06, Worst Market Drop:- 19.7%
4. March 07 to April 07, Worst Market Drop:- 9.8%
5. July 07 to Today, Worst Market Drop:-16.3%
(Check the results below)
So, How many did you get correct? My guess is that you would have forgotten about the causes of market correction other than the recent one in March. I will make another bold statement: That you will forget whatever that has happened today in a year time.
The Climate of Fear
As you can see, the correction we had so far was not the worst that we have encountered. The sharp correction we are encountering is as a result of irrational fear and apprehension. The main reason for the correction is not because of the subprime securities bankrupting banks and financial institutions. It is the fear of lending money to fellow financial institutions that resulted in the irrational drop. Without credit, companies cannot expand their business, home buyers cannot get a mortgage. Imagine the disaster that will result! The whole climate of fear will be eliminated once financial institutions figure out the impact of their portfolio of subprime securities and how it will affect their bottom-line. Another event to look out for will be the US Federal Reserve meeting during early September. Should the Fed decide on an interest rate cut in an attempt to revive the US economy, we will see the stock market rise to new heights.
Other Good News
One good news is that Asian financial institutions are relatively unaffected by the subprime securities. The other good news is that the China government has decided to allow retail investors to invest overseas. The first stop will be Hong Kong. With a huge influx of wealth from the new middle class of China, Hong Kong stock market will be given a big boost. The spillover effect will definitely benefit the rest of the Asian markets,especially Singapore, which has a large listing of china shares. In fact, the Hong Kong stock market is currently the best performing stock market, with the Hang Seng index hitting a historical high despite with a global equity correction going on.
This is one of the good times to enter the market. Client with spare cash should dollar cost average down. One year later, we will probably be worrying about another issue which will cause another correction. By than, we should have forgotten what has happened today.
1. Oil Price Hike, 2. US Inflation Fears, 3.Record oil prices, persistent rise in interest rates, 4.China stock market crash, 5. US Subprime Meltdown
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