Malaysia Macroview: From de-risking to looking for trading opportunities
Global de-risking saw emerging markets being sold down heavily in the month of September, especially after a downbeat statement by the US Federal Reserve which painted a rather bleak outlook on the US economy, and the spread of Eurozone sovereign debt concerns into the banking sector. This was exacerbated by talks of a split in Eurozone over terms of Greece’s second bailout and sparking fears of some nations leaving the EU bloc. But sentiment has since improved with growing optimism that European leaders were making progress in tackling the region’s debt problems. Equity markets, having discounted a global slowdown to some extent, and with no signs of deterioration of the situation in Europe, have staged a rebound as investors
look for trading opportunities in addition to some short coverings by hedge funds.
Investor sentiment has improved
Previously, investor sentiment was at “panic” levels, due to concerns of Eurozone sovereign debt spreading to the banking sector and the larger nations, and talks of a split among Eurozone leaders sparking fears of break-up of the EU bloc.
Investor sentiment has improved since as Eurozone leaders have signaled commitment to work out a plan, and officials have indicated that Greece is likely to get the next disbursement of aid. Markets have discounted economic slowdown, and investors looking for trading opportunities
The heavy sell-down, especially in emerging markets, have discounted a global economic slowdown to some extent.
In Asia, policymakers have been quick to react to ensure stable growth. Bank Indonesia leading the region in interest rate cut as it reduced its benchmark rate by 25% to 6.5% on 11 Oct. Philippines has announced plans for a fiscal stimulus, while Thailand has raised its tolerance for higher inflation and is likely to keep rate hikes on hold.
Investors, especially those with relatively high cash holdings, are looking for some short-term trading opportunities, while there has also been some short covering by hedge funds.
Markets are likely to remain volatile. In the short-term, there may be trading opportunities especially on stocks that have been heavily sold down.
Also, liquidity is still ample and both Europe and US are still trying to get their acts together.
On the other hand, the risks of a “double-dip” and a contagion of European debt crisis remain.
Hence, for the longer-term, we still maintain a cautious stance until Eurozone comes up with a clearer plan to stem its crisis or US is able to push through its growth plan.
For stock pick outlook related to thi macro view, visit here: Malaysia Stock Picks