Thursday, August 8, 2013

Market Watch: August 2013, QE Fears Anew

[August 28, 2013 Update] Aside from the reasons below,  the conflict in Syria has dampened investor sentiments when U.S. announced it is considering the use of military force in Syria after the Syrian government "crossed the line" by using chemical weapons against the rebels. More than 1,300 people died, including women and children in the said attack. This indicates a new war is brewing.

Isn't War good for the economy?
Well, yes and no, but generally no. Some corporations may benefit from it directly or indirectly, i.e. U.S. buying supplies needed for the war, higher oil prices, etc., but the general economic impact is negative, like what is learned from the war in Iraq. Economic uncertainties, less investors, higher government debt, money spent on military is better spent on health care, education, etc.

Other factors causing the downtrend market
U.S. will reach debt ceiling in October.


[August 22, 2013 Update] FED has announced support for tapering QE (see more information below). Philippine stock market is down more than 6% in the first hour of trading this morning. Below is an entry posted two weeks ago for the downtrend we are seeing right now. The downtrend may not be over but it may be an opportunity to buy your favorite stocks below 6100 PSEi points.

Asian stocks fell this week as U.S. Fed officials failed to clarify when will it start cutting down its quantitative easing (QE). Not to mention August is the ghost month so we might really expect a downtrend in this period because of the market uncertainties.

Why are we affected?

We live in a global economy. If U.S.' quantitative easing is tapered, there will be an outflow of hot money from emerging economies, including here in the Philippines. It will trigger a major sell off to liquidate the funds and this will affect our stock market. A chain reaction may likely occur to sell more stocks if the stock market goes down because investors want to protect their assets by liquidating. If it's overly done, there might be a panic and the effect will be catastrophic because stock market will continue to fall. This is what happened in the Asian financial crisis of 1997. We hope we do not experience it again. 

What to do?

This is a period where you need to be vigilant. Watch out for news relating to QE. U.S. Fed hints that it will start cutting down its QE at the end of this year (2013). Depending on how and exactly when they taper it will affect our market (positive or negative, probably leaning on the negative side).

Investment in stocks and funds that are in equity will be most likely affected. What I will do is cut back in my monthly investment in these vehicles until the uncertainties become manageable. In other words, I will NOT yet sell or liquidate and continue to hold my positions unless a financial crisis is triggered. I'm not saying you follow the same strategy, but this is just to inform you to watch out for the upcoming events that will unfold that may significantly affect our market.

Market Watch is a free market assessment from Pesobility. It tries to explain why the stock market or the bond market is up or down, the factors affecting the trend, and a recommended plan of action.

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