The Straits Times Index (STI) continued its decline yesterday. It was the fifth trading session decline.
19 Jan Tues 2912.92
26 Jan Tues 2740.33 (-5.9%)
Since Tuesday of last week, the STI dropped 5.9 per cent to reach 2,740.33 points. 2.81 billion shares changed hands yesterday worth $2.37 billion.
To some analysts, this is healthy correction brought about by China cutting back on loose monetary policy to rein in on asset inflation or bubble from forming. The worst can happen is for the asset bubble to grow too big and any fall from a height can be destabilising to the economy. Why not bite the bullet now and gradually reduce expansionary credit facilities to achieve a soft landing.
US’ intention to curb proprietary trading, hedge funds and private security activities of bank holding companies caused jitters in the banking sector. US is addressing the problem of financial institutions and banks that are too big too fail and does not want a repeat of the 2008/2009 financial crisis leading to the Great Recession.
The global economy is still fragile and any move to curb credit availability and the withdrawal of fiscal stimulus packages will push share investments lower. Countries knew this and are trying much to handle this. Many governments are caught in a difficult position. Increasing use of government fiscal injections can boost economy but it is at an expense of ballooning budget deficit.
We are still in difficult times though we see signs of recovery in the global economy. Share investment must be based on the readings of the current macroeconomic environment facing the world. Share values must be realistically set and cannot be going up all the time.
Despite the decline in the share prices yesterday, there are willing buyers to buy up 2.81 billion shares released by the sellers. Investors who borrowed to buy shares are less likely to hold on to their shares once easy credits dried up. They will be the first to sell out to repay their loans. With corrections in the stock market, come opportunities to invest in solid companies for the long term.
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