For one week from 12 July to 19 July, the Straits Times Index (STI) was below 3,100 points level. The concern was really the Greece debt problem that was affecting the sentiment in the stock market. Then for the last three trading sessions of this week, STI broke through the 3,100 level and it ended at 3,182 points on Friday. This was a 3.4 per cent jump from a low of 3,075 points recorded on12 July.
Why the re-bound? Eurozone leaders on Thursday agreed on a deal to stabilise the debt crisis faced by Greece and stop the contagion from spreading to other larger debtor nations such as Italy and Spain. One unique feature of this agreement this time round is that private investors of Greek debts will take a loss of 21 per cent on their debts. As all investors know, investment in any kind of assets, including government sovereign debts, face risk of losing their investment value. Governments cannot continue to guarantee full repayment of debts if they are already in poor fiscal positions. The investment community cheered that Euro-zone countries are taking this approach, which is market-driven.
Shareholders were nervous lot and rightly so since the global financial crisis in 2008/09 were still fresh on their minds. Investors were badly shaken then for not reacting in time. This explains why the stock market was jittery, moved down on news of European debt problem and moved up on news of rescue agreement reached.
The debt crisis in Europe will be a protracted affair and even when some stability is in place now, we will not be certain when the debtor nations will start economic growth to wipe out their government debts.
At the end of the day, it is economy that has a lasting impact on the stock market performance. We have to be watchful of the economic performance of countries. For Singapore, it is how our economy is doing vis-à-vis economies of our trading partner countries, such as US, China, Europe, Japan and others.
Copyright © 2011, limkimtong for Living Investment
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