Markets may have gotten a little ahead of themselves in May in predicting a recovery in the U.S. economy within a matter of months - and thus a sustainable recovery in the dollar. Wait until later in the year for that.
My prediction for a short-term correction to 3,185-3,150 has come true, so what can we expect from now on? Before we start reading into the “crystal ball”, we must ask ourselves a few questions – million dollar questions – that will dictate the direction of the stock market.
SWFs are undeniably a formidable presence in markets and their financial muscle is expected to bulk up further, thanks to a steady rise in their number as well as assets under control.
Costs of raw materials have raised several times ever since the depreciation of the US$ against most of the Asian currencies.
Regional leaders said that soaring food prices may throw millions of Asians back into poverty, undo a decade of gains and stoke civil unrest, as they urged a boost to agricultural production to meet rising demand.
The Straits Times Index (STI) has broken out of a tight trading range, with the index possibly rising to challenge the 3,300 resistance.
Investors have now braced themselves for an end to the subprime mess and, thus, are more than ready to jump back into the market as long as bad news are not overwhelmingly bad.
Shares Investment (Singapore) is not so optimistic on the current situation. We feel that the worst might be felt only in the 2nd half of the year due to the above discussion and one very important factor – rising US unemployment rate.
Year-to-date, the FTSE ST China Index has fallen 35.3% as compared to 8.2% for the STI. This has pushed the PE of even the high quality S-shares to singledigit valuations. A comeback underpinned by undemanding valuations and decent earnings growth seems quite certain for S-shares.
Despite the two indices not living up to expectations, we should all be content with the fact that global markets held up well in spite of bad news from the US economic front. At the same time, Fed Chairman Ben Bernanke had finally admitted that the US economy “could already be in a recession”.
