Date: October 4, 2011
by Roger Tan, SIAS Research @ October 4th, 2011
This is only the second trading day of the new quarter and the STI has already slipped by 3.51% (as at 2.45pm today). The Dow Jones Industrial Average slid 2.36% last night on fears that the Greek debt crisis may not be solved. Investors had ignored news that auto sales were up in September 2011.
| There hasn’t been a real bright spot in almost any equity market worldwide since the beginning of August. Between 1 Aug 11 till now, the MSCI World Equity Index has fallen by about 17% while the STI has fallen by about 20%. Around the region, MSCI Hong Kong Equity Index has fallen by about 26% while MSCI China Equity Index has fallen by about 30%. MSCI Asia ex-Japan Equity Index has fallen by about 25% over the said period. Greece has been and will continue to be one of the main fuels of fear in the market. A debt default by the nation in the middle of this month will spark fear of a contagion effect that may spread not only to the other EU nations but even to Asia and US. Memories of the dire effect of the global deleveraging movement on equity prices after the Lehman collapse are still fresh in the minds of investors and any reminder will cause hands to quiver. Greece is now like Freddy Krueger to many investors. When will this nightmare be over? Unfortunately, it may not be anytime soon. Even if Greece is able to refinance its debt when it comes due mid of this month, it will have to face this issue again when this loan comes due the next round. And with austerity measures in place, the probability of the nation kicking its economy into shape (and I am not even saying good shape) is small. This means that the other way out of the debt crisis for Greece may be to start selling some of its assets – including their land – to foreigners. You know who I am talking about. But this solution is remote for now as it will be an embarrassing move for the Europeans and the EU may not support it as long as Greece is still part of the EU. At the end of the day, any refinancing rescue plans from the EU would be nothing more than a plaster over a huge bullet wound. Even if the size of the plaster is huge the most it would do is stop the bleeding and not heal the wound. EU should be helping their union members to improve their economy and, if need, loosen their monetary policy and allow expansionary fiscal policies in troubled nations. However, we know that this will not happen as long as the Germans have the loudest voice. So, Greece will be like the Nightmare on Elm Street sequels. Freddy will be defeated at the end of every horrifying and gory episode but in the end he always reappears just before the credit starts – just to tell you that there will be another Nightmare on Elm Street sequel again. |
