As of this writing (11:55pm, Wednesday, Singapore Time), U.S. stock indices continue their growth, even if the first quarter economic growth in the country was trimmed to 1.8% from the initial estimates of 2.4%. (BUT, GROWTH NONETHELESS)
Dow Jones is currently up by 0.54%; the S&P 500 is up by 0.55%; and NASDAQ is up by 0.58%. Perhaps, in addition to Americans’ upbeat outlook for the year, this may have been due to the positive market performance in Asia Pacific markets today. As we know, China’s signals that it will ease its current credit crunch late yesterday jumpstarted the recovery in the western markets last night, which in turn flowed into emerging markets today, with the Philippine Stock Exchange index (PSEI, +5.7%) leading the rate of growth or rebound among its peers in the region.
Now what could we get from this (of course no one can predict the future!, so this is just a “what-if” scenario), and what will happen to tomorrow’s markets?
I posted the above questions because ever since Monday, when the PSEi seems to be not picking up even after the massive selloff late last week, I’ve been getting a lot of questions via email and Twitter and Facebook regarding the market.
And with all these things happening around, I’ve just confirmed one big thing: most Pinoys do not read; or do not read A LOT. If they did, then they will know that I have repeatedly written in this website/blog that I am not an expert, nor do I have any economics/financial background. It’s just that I read a lot, and it just so happened that there are a lot of FREE—as in NO-CHARGE—materials online that you can find to help you understand stock INVESTING (AGAIN, help you understand; and investing, not speculating).
Anyway, I digress. Going back to the topic, I’ve been answering a lot of emails from Pinoy investors asking what the heck’s happening in the market. Do they have to pull out their money now? Will stock prices go up soon? Will this rally today continue until Friday?
And I did answer them, but without answering them directly. The thing is, since I am not an expert, I am prone to make mistakes. Who isn’t? Even the most expert investment analysts in the U.S. and the biggest investment banks before went bust. So who am I to play expert?
No, I answered them in such a way that they will find their answers by themselves; through their guts and beliefs and faith and analysis. They are, in the very first place, are the masters of their tools (or money), so they’re the only ones who can decide whether or not to believe whatever the heck an answer they get.
But of course, I made sure that everything I told them are of substance—be them in laymen’s terms. Why not? I am not an expert, in the very first place.
Well, since their questions are almost the same, below is a slightly better version of what I told them all.
I told them that the selloff we’ve seen last week until yesterday (Tuesday) was mainly due to the fact that investors were pretty shook up with the announcement by the Fed that they MAY scale back the QE program STARTING late this year, and probably stop it by next year – if the economy is recovering to their liking. The crazy thing that happened is that everyone believed that the Fed WILL reduce the QE. No IFS. So there they go: foreign selling up the roof. To make things worse, on Monday, China had its credit crunch hoolabaloo. That news further brought the markets down – and further scaring the heck out of all investors.
Now, Tuesday (yesterday), markets were still red. But near the market close, China announced that it will ease the credit crunch in its financial market. This made a sudden reversal in some markets in the region (Hong Kong, for one).
That started the rally. London opened higher on the same news. This spilled off into the US when it opened up its market last night (Tuesday morning on their side). Add to that the initial estimates of the U.S.’s 1Q GDP growth. Those positive sentiments boosted Asia’s stock markets the next trading day (which is today, Wednesday).
Investors, although they were able to breathe a sigh of relief after today’s run, are still worrying whether or not this rally will continue. So, will this continue?
Here now’s my so-called layman’s analysis.
Probably, the fact that the Fed didn’t really give the hard specifics on whether or not they will start tapering off the QE anytime soon has already sunk into foreign institutional investors’ minds. So they might have said, “The obligatory negativism phase is now over. Let’s get on with the party.” So there they go, starting to enter the emerging markets again due to the excess QE-based liquidity in their hands. This might explain the net foreign buying into the PSE today.
But, another major factor in the market today is that stock prices have almost bottomed out. Stock prices are cheap. So investors may have started buying into the market for potential yield down the road.
The fact remains, however, that the foreign investors are still using their excess liquidity. So the market is still under the controls of this huge amount of cash, which can be taken out anytime. So definitely, volatility remains.
Should investors be afraid, then? Well, I pointed out that first and foremost, the Philippines doesn’t need to create cash in order to stimulate the market. The OFWs are doing a big chunk of that. Monthly, remittances come into the country. And where do these remittances go? Spending, of course. For buying of goods and services. Paying of mortgages. Schools. Dinner outs. Out of towns. Fuel. You name it. Who benefits here? The companies. How so? They are generating sales.
The big thing here is that Pinoys are spending. And paying their loans. So banks are also generating revenues. Therefore, the long and short of it, the Philippine economy is moving. A lot of infrastructures are being built. The Outsourcing service is booming. While many are jobless as of the moment, a lot of people are entering the workforce. More and more Pinoys are becoming middle class.
Fundamentally speaking, the Philippine economy is very sound. Governance is doing it big part on this as well. And more foreign companies are starting to invest in the country.
So should they be afraid? I am not. Will stock price go up? Eventually. I added, though, that it depends on the companies they’ve picked. But if they are stable companies, then stock prices will go up as well, but that may be IN THE LONG TERM, I added.
Should they take their money out? I told them, it will be up to them to decide. I just gave them the real scenario of what’s happening. And they should consider everything before making their next big move.
As I finish this piece (1:00am, Thursday, Singapore Time), Dow is up 0.75%; S&P500 is up 0.73%; and NASDAQ is up 0.69%.
I hope investors won’t be very trigger-happy in getting their gains tomorrow. Let’s try to push it up further until Friday, shall we?
As always, just email me your violent reactions.