Stock Indices declined – New Normal?

On 8 May, I wrote to say that stock indices had recovered from 2008/09 global financial crisis. The investment climate changed after 22 May. Stock indices tumbled across most equity markets after Chairman of Federal Reserve Board (Fed) said that there would be need to taper off quantitative easing of US monetary policy due to improving US economy.

The table below shows indices at 31 December 2012 (start of this year), 7 May 2013 (time of writing earlier blog) and 11 June 2013 (yesterday’s closing).

31.12.12 7.5.13 11.6.2013 Change
STI 3,167 3,416 3,170 – 7.2%
Nikkei 225 10,395 14,285 13,317 – 6.77%
Sensex (Mumbai) 19,426 19,958 19,143 – 4.08%
FTSE 100 (UK) 5,897 6,560 6,299 – 3.97%
Australia All Ord 4,664 5,177 4,748 – 8.28%
Hang Seng 22,656 23,215 21,354 – 8.01%
Shanghai Comp 2,269 2,246 2,210 – 1.6%
Dow Jones Ind 13,104 15,056 15,122 – 0.43%
S&P 500 1,426 1,625 1,626 – 0.06%
Nasdaq 3,019 3,396 3,436 + 1.17%

Which indices fell the most from 7 May?

1. Australia (- 8.28%)
2. Hang Seng Index (-8.01%)
3. Straits Times Index (-7.2%)
4. Nikkei (-6.77%)
5. Sensex (-4.08%)
6. FTSE 100 (-3.97%)

Which indices were stable between two dates?

US equity markets and China were stable.

Indices compared with start of 2013

Shanghai Composite, Hang Seng and Sensex were now below the level seen at the start of this year.

Singapore’s STI was nearly at the same level as beginning of the year. It was as if there was no movement during first half of the year.

All the other indices were still higher from the start of year.

The new normal

The correction seen in some indices in recent weeks came about because of fear that loose monetary policies of countries might be withdrawn gradually because of improving economic climate. Government bond yields were seen moving up as governments may stop buying them back. This suggests that interest rates are poised for uptick and hence borrowing cost would rise causing fund managers to reconsider their next investment strategies. As yen strengthened (USD/Yen = 96.33, less than 100), funds were seen to unwind yen carry-trade (borrow in yen to invest in other high yielding assets).

I think that this could be the new normal as cheap money is pulled under the feet of fund managers. We must as well get used to it and adjust our expectations when investing in this likely future scenario. How to move forward in investing? This is a big topic and is not covered here.

Copyright © 2013, limkimtong for Living Investment

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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