Welcome to the 95th Issue of Weekly e-newsletter by www.HousingLoanSG.com This week I like to share with you "Why Global Stock Markets Might Correct and Fall?"

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Cheers!

Dennis Ng, http://www.HousingLoanSG.com - help you get BEST Deal in Housing Loans in Singapore & Australia!

 

Why Global Stock Markets Might Correct and Fall?

In the last 3 months since the low on 9 Mar 2009, global stock markets have been going up. The top 3 markets in Asia are India (up 80%), Hong Kong (up 61%) and Singapore (up 60%).

 

Almost anyone who bought any stocks in the last 3 months made money. Seems like everyone is a “stock guru”, since whatever stocks they pick made money.

 

 

Euphoric Market, Right Issue Cause Share Price to Rise

Many companies take the opportunity to raise capital by issuing new shares and Right Issue. 3 months ago, when market sentiment was bad, any rumours of Right Issue by any company would be unwelcome, and causing the company’s stock price to fall.

In recent weeks, the reverse happens. Any company after announcing a Rights Issue, its stock price actually went up. The fact is if a company is unable to raise its profits, any increase in the number of shares issued actually decrease the earnings per share, this is negative for shareholders and share price should fall instead of rise.

Thus, what a 180 degree change in market sentiment, from bearish to bullish in the last 3 months. In fact, the market sentiment is so euphoric that even bad news are interpreted as good news. For the month of May 2009, U.S. retrenched another 345,000 workers and unemployment rate shot up from 8.9% o 9.4%, highest in 26 years.

 

Increase in Unemployment Interpreted as Good News

This bad news was interpreted as good news instead, because analysts compared the average of 500,000 job loss per month in the preceding 6 months.

U.S. economy contributes to 25% of the world economy. For the world economy to recover, U.S. economy has to recover. Consumption in U.S. contributes to 70% of the U.S. economy. Any increase in unemployment figure reduces consumption, not increasing consumption.

Thus, with increase in unemployment, this is bad news for U.S. economic recovery, not good news.

 

Possibility of Global Outbreak of H1N1 Flu

In the last few weeks, almost every day there are new H1N1 Flu cases in Singapore. In the last few weeks, more and more people around the world are diagnosed with H1N1. The chance of a Global Outbreak and Pandemic of H1N1 Flu has increased. In Australia alone, the number of H1N1 confirmed cases hit above 500 people and Australia in a news on 3 Jun 2009 warned that Australia is close to a flu pandemic.

However, such news did not cause a dent in global stock markets. The global markets continued to go up instead.

 

Rise in Oil prices might derail economic recovery

In the last few months, quietly, Oil prices have gone up from about US$40 to over US$70, or an increase of 75%. Any further increase in oil prices might stoke inflation and derail economic recovery, again this bad news did not affect the stock markets adversely.

 

As a Retail Investor, what can you do?

A simple way to reduce risks is to diversify your investments, do not put all your money into stock markets or unit trusts alone.

For instance, in the event of a stagflation, ie. Global economy remain stagnant but inflation goes up, the prices of “real assets” would go up. My investments into Gold and Silver, Land Investments and French Fine Wine would do very well.

In the event stock markets continue to go up, my 30% allocation to stock markets would also make me money. In the event that the economic recovery is “W” shape, ie. Prices might drop again in the months again, I can use the Opportunity Fund I have to go into markets to bargain hunt.

I have positioned myself to win and to make money no matter which scenario happens. Have you? More details are available in my book “Mastering Your Personal Finance”, the First Chinese/English Book on Personal Finance in Singapore. This book will be available in Popular book stores next week, and would be in Kinokuniya and Borders in about 2 weeks’ time.

Note: above is just my personal opinion. This e-newsletter is not giving you advice.

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Cheers!

Dennis Ng on behalf of

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info@HousingLoanSG.com

 

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