Market meltdown on US concerns

Hi

Had been a bit held up with lot of traveling this side so was out of blogging since few days.

Today am keenly observing and tracking the volatile situations across the globe.

Markets across the globe took a beating today due to concerns of housing and credit tightening which can slowdown the US economy, as there will be less money/ liquidity for the economy to grow. When this concerns is on US economy, which holds more than 30% of the world GDP, then it’s a concern. US are the biggest market and since we are in a global village the happenings in the US market affect us. The US housing and credit concerns might spread to the other economies too. This concern makes the traders, stockbroker’s world wide to jitter and sell off to be safe.

The sell offs include US, Europe and Asian markets, which took a cue via heavy selling on Wall Street. Japan's Nikkei 225 index ended the morning session down more than 2.3%, to 17,291.23, share indexes in Taiwan, South Korea and Singapore all declined more than 2% and Argentina Brazil and India as of now more than 3%.

Financial shares abroad took a beating due to the concerns that sub prime mortgage market are spreading, making financing the corporate buyouts that drove the market's spring rally more difficult. What began in recent months with the collapse in the sub prime-mortgage financial sector has led to a ripple effect devastating a number of hedge funds, including two that are part of Bear Stearns and one in Australia of ABN Amro.

Increasingly investors are refusing to provide Wall Street firms with cheap money to finance leveraged buyouts, a key source of support for the stock market. How can brokers buy more when nobody is ready to give credit. If credit tightens how will the brokers pay back the loans. They have to sell off?? Right.

Unwinding of carry trades also is a party to the down flow of markets. Carry trade means to take a loan at a lower interest rate from any worldwide currency and investing it in a place where we can get higher interest. Lot of fund operators, companies and investors had borrowed in yen and other currencies and invested in real estate & equity world wide to make higher returns. What they didn’t bother about was the high valuations of various asset classes. The carry trade borrowers are concerned that they might not be able to make more than what they had borrowed. So they tend to sell off. This is the reason why today yen hit a three-month high against the dollar and a six-week high versus the euro on Friday as a sell-off in credit and stock markets forced investors to cut back on risky carry trades.

Sub prime lending i.e. lending at a higher rate than the market to the those who are negatively listed for example defaulters is also a concern as first of all they are defaulters secondly when interest rate goes up they tend to default a bit more and the credit market collapses.

Indian markets ideally should not get too jittery, as our growth rate is pretty good though we are considered expensive. Here we have to keep in mind two things first being that India’s Q1 results were above expectation so ideally momentum should continue secondly till now India was trading at a higher PE compared to its counterparts like Taiwan, Indonesia but now that difference has come down. This should ideally make sure that more money flows to India. Sensex last corrected in Feb when it had gone down by 9%. We should not ignore the fact that our markets have grown pretty fast compared to the normal rate which if a trigger like this continues for more than 2 to 3 days might result in a psychological situation and people might panic to sell off triggering a sharp correction. But just to remember that everything will be based on the further developments in the international markets and whatever happens will be for the short term. At this level of the market too staggered investing with a 2-3 year horizon can be done. Companies, which are heavily exporting to US and have a strong growth, rate like large tech companies will be profitable in the mid tem.

So keep reading, invest & stay focused.