Sunday, August 14, 2011

Market commentary on the stock market collapse that began on 2 Aug 2011

The recent global stock market collapse began on 2 Aug 2011. As of today, the Straits Times Index has dropped more than 10%. As of now, I do not have a significant position in the market to bias my opinion on the market. Differing opinions are most welcome.

Even if the global economy is headed for recession, I am actually quite confident that we will at least have a strong rally before the Singapore stock market heads down further (assuming it does). I don't think the Singapore market will continue its decline at this point.

In the week before 2 Aug 2011, I was surprised by the resilience of the Singapore market in the face of weaknesses in the European and US markets. Compare the price charts of the Straits Times Index with the European and US markets to appreciate its resilience. I suspected foreign fund inflows into the Singapore market to explain our market's resilience. The negative swap offer rates complained by UOB reinforced this suspicion.

There are plenty of cash on the sidelines. In fact, there is so much cash hanging around that the Bank of New York Mellon is charging fees on big deposits instead of paying interest.

The market needs cash to feed a rally. Otherwise, expressions of optimism are just empty talk that cannot be translated into action. At this moment, there is plenty of cash in waiting to jump in once the market stabilises and rationality comes back.

In the past 2 weeks, I observed several SGX announcements on insider purchases. Meanwhile, there are still several stocks on the watchlist with valuations which allows one to buy with peace of mind. In the US, CEOs have been buying back their stock in the past two weeks.

Hence, I am quite confident that we will at least have one more strong rally even if a global recession is impending. I do not think the Singapore market will continue its decline at this point.

1 comment:

  1. The first shoe to fall is gold, the perceived "safe" investment. When gold continue to drop, all the way to $1500, and below, more dominoes will fall, including aussie dollar deposits, another safe-heaven currency. Many gold investors will hold on to their loses.

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