The dreaded “R” word

Move aside sub-prime mortgage woes and here comes the most used phrase – Recession in the US.

 

Is US in recession already? This sent the investors globally into a bearish frenzy. Who said that the Asian economies are decoupled from the US economy? The world’s largest economy has so much influence over the other economies as the stock markets round the globe had shown over this week.

 

On 1 November 2007, I wrote in my blog titled Stock Market Bubble? that the world has not seen so many new highs in 2007. On 30 October 2007, the stock indices reached new highs. Since the beginning of 2008, the stock markets tumbled across aboard. The latest indexes as at 18 January are:

 

                                       30 Oct     18 Jan   Change %

1. Hang Seng                  31,638     25,201    – 20.3

2. Shanghai Composite  5,897       5,108      – 13.3

3. Nikkei 225                    16,651     13,861    -16.7

4. Mumbai Sensex           19,783     19,013    – 3.8

5. ST Index                       3,906       3,104      – 20.5

6. Kospi                           2,070       1,734      – 16.2

7. Taiwan Taiex               9,859       8,184      – 16.9

8. Jakarta Composite     2,680       2,611      – 2.5

9. Kuala Lumpur KLCI     1,416       1,439      + 1.6

10. Bangkok SET              918          789        – 14.0%

 

The Straits Times Index dropped significantly by 20.5% followed by Hang Seng Index at 20.3%.

 

Singapore and Hong Kong are prominent financial centres of the world and investors move in and out of the market freely. These markets are pseudo-barometers of the global economies (in particular the US economy) as global funds buy into HK and Singapore equities to find higher returns or sell on short notice to downsize the fund size in order to provide cash for the sudden redemption of these funds by investors.

 

The US economy is encountering the possibility of recession if nothing is done by the US Bush administration or the Federal Reserve Bank (Fed) to prevent the US from slipping further.

 

The Dow Jones Industrial Average (Dow) sank to close at 12,099 on 18 January, the lowest level since March 2007. For Dow to go below 12,000 psychological level will spell more gloom for the investors of US and the other stock markets. Fears have overtaken optimism that the US economy  will have slower growth in 2008 instead of recession. Fear feed on fear and it takes brave hearts to go into the stock markets to cherry pick fundamentally good shares that have been oversold. The oft-quoted phrase that buying shares now is like trying to catch a falling knife. Is this the bottom yet?

 

Written on 1/19/2008 11:17 AM

 

Copyright © 2008, the author known as LKT in Singapore.

 

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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