You might have noticed or became a victim of the recent heavy selling in the stock market since the end of Jan. This is not only happening to Singapore market, but all Asian markets, except Japan, which suffered heavy losses too. As mentioned before, Asian markets had a good run in 2010, mainly due to their exceptional recovery from the global crunch in 2008 and hot money pouring from the US and Europe. Now, fund managers are re-considering their exposures in Asia, amid escalating inflation in the region. Authorities in China and South Korea are scrambling to impose higher interest rates to curb the problem. Such measures usually spook investors and they start wondering if the authorities would be able to be in control of the situation. Meanwhile, while Asian governments are scratching their heads over the next measure to impose, fund managers decide to withdraw their funds and plough back into the US and European markets, where there are still sweet growth story. Advanced economies grew 3% in 2010, less than half the pace of Asian economies which grew at 7.1%. Most fund managers think it is catch-up time for these economies. Over the last 3 weeks, these fund managers withdrew a staggering US$7.02B out Asian markets. The movement started out with an excuse to pull the stock market down during the Egypt crisis. After a false rally, the fund managers then started their concerted actions to continuously sell down the market. This amount to date, is the largest fund withdrawal in 3 years. Looking the today's stock market, the music does not seem to have stopped yet. It is expected to last for another few weeks. So, don't get trapped again by any false rally or rebound in coming weeks. A false rally is detected by low volume of transaction pushing up the prices. It will then be followed by heaving selling after that. Fund managers are professionals and have large funds under their control. If they want to sell their shares in the market, they have to get the best value out of them. After selling down the market for a few days, they will start buying them back to create a false rally. Other investors who see it as a market recovery, may follow to buy up the shares. When the price is right again, the fund managers would start selling them again to unwitting investors.
Nonetheless, to be a savvy investor, you need to know the happenings in the market. Opportunities lie out there every day. Don't despair on the performance of the market. The market will never die and whatever goes down will come up. If you have the power to hold, look out for oversold stocks. Stay in the sidelines if you are unsure. These companies are still operating healthily and still collecting their profits. Their shares are just being manipulated in the meantime. When investors start to realize their true value of these companies, buying sentiment would then start. In the wider perspective, Asian markets will start attracting back investors once they are convinced that the governments are still on top of their steering wheels. Moreover, the next round of QE2 from FED is expected to pour into the market again. But do keep in mind, if hot money comes in easily, be prepared that it exits also easily too; a phenomenon that is happening exactly now.
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