BLOG: Herd Mentality? Fear? What About Tomorrow?

Last week was a bust. The PSE index ended the week 2.28% or 144.5pts lower at 6,182.17 – amid investors’ continued over-reaction to the Fed’s announcement that it may consider tapering of its stimulus program by the end of the year.

This week, we’ve just seen the PSEi yesterday fell nearly 20% from its highs of 7392 in the middle of last month. And then today, the sell-off continues, with the PSEi sliding further and entering the bear market, as it closes trading at 5,789 – down 3.05%.

Oh boy, my fingers were really sore from answering emails, Facebook comments, and Twitter questions on why the market is behaving as it is right now. I tried to explain to the best of my knowledge what I think has been happening in regional markets so far – at least as much as the PH stock market is concerned. Or as long as it’s affecting the PH stock market.

I may not be an expert in such things, but there are definitely issues here that even laymen could understand. For instance, that quantitative easing (QE) program in the United States. Of course there’d be a lot of technical jargons that experts would say to explain the stuff, but the core of it is just the Fed creating money out of nothing (but projections and forecasts and expectations and hope) to inject into the market so that the economy would move again (via lending/spending). I’ve written a “laymen’s” article on that issue here.

Anyway, so what’s happening now? Apparently, the aftershock of Ben Bernanke’s announcement that they MAY CONSIDER TAPERING OFF the QE program (READ: depending on economic signals or indicators) is still affecting global investors. Well, at least up to today’s trading in Asia. As we can see, massive sell-off is still happening across all markets in the region.

This has been made worse by the credit crunch announcement in China yesterday. So what happened is, as hot money outflow continues, and talks of credit crunch in China heats up, the market took a beating yesterday. Later in the night, which is the beginning of the trading session in the U.S., investors saw what happened in the Asian markets. So they, too, suffered their own version of beating. Come Tuesday morning in Asia, seeing the red U.S. markets, again prompted investors to stay away from the market. As such, Tuesday was yet another red day for PSE.

Now, at the end of the trading session, there’d been talks that China will ease credit fears – sending a positive signal in the markets. At the very last moment, Hong Kong was able to reverse its trend and end up 0.21% higher. In the Western markets, Europe opened up positively on this news. And as of this writing (11pm Tuesday, Singapore time), Dow Jones is up 0.81%, S&P500 is up 0.89%, and NASDAQ Composite is up 0.62% on big jump in home prices in the US as well as positive China comments.

So what’s gonna happen tomorrow at the Philippine stock market? Well, if the uptrend continues today in the U.S., this might give, in turn, a positive signal in Asian markets which, as we know, have already hit really low levels compared to the first quarter of the year. So definitely, the possibility that the markets will make a turnaround is high.

Let’s see how it goes. Good luck tomorrow.

As always, email me with your violent reactions.

richard@phstocks.com