by R SIVANITHY (16 Nov)
SINGAPORE - The Encarta World English Dictionary defines 'capitulate' as 'surrender, especially under specified conditions; consent or yield: to give in to an argument, request, pressure or something unavoidable'. It also defines 'capitulation' as 'a giving up of resistance'.
Much has been made of the selling of the past year, with some observers believing that markets have capitulated and that a bottom has been reached which, for the Dow Jones Industrial Average is around the 8,000 level, for the Hang Seng Index is around 12,000 and for the Straits Times Index (STI) is around 1,600. How plausible is this?
For the STI, the 1,600 level represents a loss of about 2,200 points or just under 60 per cent from all-time high, roughly equal to its fall during the regional crisis of 1997-98.
If you believe the present crisis presents conditions that are no worse than they were ten years ago because Asia is relatively well-insulated from events in Europe and the US, then there is a good chance that the local market is close to a bottom and that further downside, although still very likely, is limited from here on.
We're not really qualified to pass judgement on the Hang Seng; suffice to say that its loss from an all-time high of about 31,600 to 12,000 is 62 per cent - not dissimilar to the STI's fall over the same period. So again, although downside is still likely, chances are good that it would be limited.
However, while it is possible to argue that stocks in Singapore and Hong Kong (and most of Asia) may have capitulated as per the definition above, the same cannot be said of Wall Street, which, as the source of the world's problems, remains overly optimistic, stubbornly reliant on the same investment bank model that has failed spectacularly over the past year and is very possibly still overvalued.
At 8,000, the Dow's fall from an all-time high of 14,100 is only 43 per cent (its present loss at Friday's close of 8,500 is under 40 per cent), which is significantly less than any of the world's other major markets.
Consider for instance, that Japan, which has grappled unsuccessfully with deflation for almost 20 years, has seen its Nikkei lose almost 80 per cent from its own pre-housing crash all-time high of about 39,000.
As we have pointed out many times before in this and other columns, earnings estimates are still way too high in the US - Bloomberg's summary gives the S&P 500 as trading at a historic earnings per share of US$47 and a forward figure of US$76. How likely is it that Corporate America will report such amazing earnings growth in the months ahead when the economic numbers are only expected to worsen?
On this note, research outfit Ideaglobal said of Friday's US October retail sales fall - which was the worst monthly fall on record - that it reveals a terribly weak picture of the consumer, signalling a weak holiday season.
'This is admittedly significantly worse than we anticipated which was for a more gradual decline in the wake of weakness posted in September..it remains difficult to assume that consumer spending will be supportive in the coming quarters. The combination of job concerns on behalf of many, the debilitating credit crunch and the multiyear correction in housing has helped bring the economy to a halt. Personal consumption should remain weak in the months ahead as consumers rein in on discretionary spending. This could be only the early stages of considerable declines in the months ahead'.
The bottom line is that that although markets everywhere may be close to capitulation, the same cannot be said of the source of the world's problems, Wall Street.
Even if the US market does not correct by as much as others like say Hong Kong or Singapore, it would be reasonable to expect at least a 50 per cent loss from all-time high, given the magnitude of the country's problems. If this does occur, the Dow would fall to just above 7,000.
So until investors see definite signs of Wall Street capitulating - or valuations coming down to more realistic levels - the advice would remain the same it's been for this entire year - sell into strength and be selective about buying the dips.
-Editorial Report by R SIVANITHY (16 Nov)
SINGAPORE - The Encarta World English Dictionary defines 'capitulate' as 'surrender, especially under specified conditions; consent or yield: to give in to an argument, request, pressure or something unavoidable'. It also defines 'capitulation' as 'a giving up of resistance'.
Much has been made of the selling of the past year, with some observers believing that markets have capitulated and that a bottom has been reached which, for the Dow Jones Industrial Average is around the 8,000 level, for the Hang Seng Index is around 12,000 and for the Straits Times Index (STI) is around 1,600. How plausible is this?
For the STI, the 1,600 level represents a loss of about 2,200 points or just under 60 per cent from all-time high, roughly equal to its fall during the regional crisis of 1997-98.
If you believe the present crisis presents conditions that are no worse than they were ten years ago because Asia is relatively well-insulated from events in Europe and the US, then there is a good chance that the local market is close to a bottom and that further downside, although still very likely, is limited from here on.
We're not really qualified to pass judgement on the Hang Seng; suffice to say that its loss from an all-time high of about 31,600 to 12,000 is 62 per cent - not dissimilar to the STI's fall over the same period. So again, although downside is still likely, chances are good that it would be limited.
However, while it is possible to argue that stocks in Singapore and Hong Kong (and most of Asia) may have capitulated as per the definition above, the same cannot be said of Wall Street, which, as the source of the world's problems, remains overly optimistic, stubbornly reliant on the same investment bank model that has failed spectacularly over the past year and is very possibly still overvalued.
At 8,000, the Dow's fall from an all-time high of 14,100 is only 43 per cent (its present loss at Friday's close of 8,500 is under 40 per cent), which is significantly less than any of the world's other major markets.
Consider for instance, that Japan, which has grappled unsuccessfully with deflation for almost 20 years, has seen its Nikkei lose almost 80 per cent from its own pre-housing crash all-time high of about 39,000.
As we have pointed out many times before in this and other columns, earnings estimates are still way too high in the US - Bloomberg's summary gives the S&P 500 as trading at a historic earnings per share of US$47 and a forward figure of US$76. How likely is it that Corporate America will report such amazing earnings growth in the months ahead when the economic numbers are only expected to worsen?
On this note, research outfit Ideaglobal said of Friday's US October retail sales fall - which was the worst monthly fall on record - that it reveals a terribly weak picture of the consumer, signalling a weak holiday season.
'This is admittedly significantly worse than we anticipated which was for a more gradual decline in the wake of weakness posted in September..it remains difficult to assume that consumer spending will be supportive in the coming quarters. The combination of job concerns on behalf of many, the debilitating credit crunch and the multiyear correction in housing has helped bring the economy to a halt. Personal consumption should remain weak in the months ahead as consumers rein in on discretionary spending. This could be only the early stages of considerable declines in the months ahead'.
The bottom line is that that although markets everywhere may be close to capitulation, the same cannot be said of the source of the world's problems, Wall Street.
Even if the US market does not correct by as much as others like say Hong Kong or Singapore, it would be reasonable to expect at least a 50 per cent loss from all-time high, given the magnitude of the country's problems. If this does occur, the Dow would fall to just above 7,000.
So until investors see definite signs of Wall Street capitulating - or valuations coming down to more realistic levels - the advice would remain the same it's been for this entire year - sell into strength and be selective about buying the dips.
-Editorial Report by R SIVANITHY (16 Nov)
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