This being the first post, I have pinpointed some current issues at the market. In the future, the content will not be as analytical as it is now, at least not all the time. The purpose is to write about the market in general and may be discuss about some current news in more detail regardless whether they are economical or company( or issue) specific.

Forecasting <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Forecasting the market has historically been extremely difficult. In fact, I tend to believe that forecasting the major cycle movements is not impossible but when it comes to exact timing of these cycles it seems that listening the "market specialists" and forecasting from your morning coffee is equally useful.

Back to the market

Currently, we are living interesting times as fluctuation in equity market has risen remarkably due to re-pricing of credit products. Followed by the recent subprime issues, recognition of credit risks has started to lower investors' market risk tolerance. The big question which arises from all this is whether these credit problems result in a short-term slowdown or is it triggering a consumer-led recession as Morgan Stanley recently outlined. 

All in all, even though equity indices have recovered partly from recent dive, volatility in equity market looks set to continue. The advent of a massive credit crunch that damages <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />US consumption is at this stage the biggest risk scenario.

Emerging markets are driving global growth

In 2007, about half of global GDP growth will come from emerging markets and US firms that are outperforming earnings estimates are getting much of that growth from abroad. However, a few vulnerabilities are seen already e.g., South Africa is running a current account deficit. 

What happens to global economy if China starts a policy driven slowdown in 2008, and, in general, what is the Party's role in China and have investors discounted country related political risks in full? You don't have to be a genius to predict that, with current growth levels, China is facing some inflation concerns. 

Another interesting market is India and its four-year-long bull run. There have been eight corrections of 5% or more from peak to trough. To pinpoint the high volatility, seven out of the eight corrections and subsequent rallies have been "V" shaped, with the May 2004 drop being the exception. The rise subsequent to the fall has averaged a 36% return, with 20%-plus rallies in six out of eight occasions. So far, these have been just corrections in the bull market.

I am confident that, at some point, we are going to see a currency/financial crisis spreading in emerging markets but predicting the exact timing is utterly hard. I don't want to sound like a doom-day prophet by saying this, and may be I am too early, but certainly, there are some warning signals out there.

Some P/E figures:

 

current

est.

OMX Helsinki

15,21

14,76

Hang Seng (HK)

16,73

16,42

SSE 180 (Sanghai)

49,59

41,53

SET (Thailand)

15,65

12,55

 

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