Six things

by Manshu on September 23, 2011

in Opinion

Decoupling

First thing – the 700 point fall today was quite painful, and countries all over the world have fell with Indonesia falling as much as 9% in one day. The market in general has been quite volatile, and talks of a double dip recession are gaining currency. People don’t talk about decoupling as much as they used to and to my mind there is only one way to think about decoupling – the way Sandip Sabharwal described it – that the markets will have different fortunes over the long run, but in the short term they will correlate quite strongly.

Sticking to the plan

I have touched upon my thoughts on the uncertainty and different asset classes only recently so I’m not going to say the same things again. Investing in equities for the long term means that you believe that a country and companies in that country will continue to grow earnings many years down the line and the stock market will reward such companies. I don’t think any of that has changed. I bought some stock today, and will continue to do that in the days to come even if the market were to fall fifty or sixty percent from here.

NCDs might offer a new opportunity in this volatility

The NCD market is relatively new, and the NCD listing was played like the IPO listing game by punters – if the market continues to get beaten in the next few months – I think some of that pessimism can flow through to the prices of NCDs as well, and make them attractive relative to risk. That can push yields higher, and make it attractive to invest some part of your money in NCDs as well. This is a good space to keep an eye on.

Gold is just another asset class

I don’t think gold can be considered a safe haven any longer with the kind of speculative money that’s invested in it, and the kind of daily movement it sees. Something that moves more than 2% in a day this frequently is far too volatile to be considered a safe haven in my opinion.

The premise that it has a negative correlation with stocks is going to be severely tested in the days to come.

China

While most of the focus so far has been on Europe, I see increasing mentions of risks in Chinese real estate, and slowing down of the Chinese economy and how that will hurt the market. It won’t surprise me to see the focus turn from Europe to China in the next few days.

Finally, under which tree are all the people who say you should be greedy when others are fearful hiding?

{ 8 comments… read them below or add one }

Super Saver September 23, 2011 at 7:31 am

Hey, I only counted five things in the article: Decoupling, Sticking to the Plan, NCDs, Gold and China πŸ™‚

As for me, I sold off almost all our stock holdings in June 2011. The market feels a lot like 2008, which was bad. Unfortunately, I stayed invested in 2008. I am not making that mistake again in 2011 πŸ™‚ Our main exposure are the stock options I still have in the company from which I retired. Hopefully, their value won’t be wiped out by the stock market decline.

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Manshu September 23, 2011 at 6:56 pm

The tree comment was the sixth point πŸ™‚

I was quite fortunate in late 2008 – 10 period because I was able to deploy a lot of cash in the market at that time and then the market went up much faster than anyone expected.

I am planning to follow the same approach this time as well, I guess the things that work in my favor is that I’m still quite young, and have a high savings rate so that gives a good steady cash flow that can be deployed in stocks without having to worry too much about what will happen to the market two or three years down the road.

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bemoneyaware September 23, 2011 at 10:36 am

Good summary. The market is difficult to predict in short term but hopefully in long term it would go up. Is it the time to start investing in at the current levels or wait for another fall(10%-20%) is what most of investors are thinking. Catch is also if we redeem our money in equity where to put?

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Manshu September 23, 2011 at 6:58 pm

Yeah, I don’t think anyone knows the answer to that – there is no way to predict that πŸ™‚

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austere September 23, 2011 at 11:33 am

Am hiding in MIPs and balanced funds. πŸ™‚

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Manshu September 23, 2011 at 6:58 pm

So, not completely out of equities – balanced funds will give you the equity exposure πŸ™‚

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ankm83 September 25, 2011 at 12:54 pm

There are lot of comparisons being drawn to the slowdown/meltdown of 2008 vs now. The missing piece in the jigsaw puzzle for me is the commodity prices, which continue to remain very high (even as weaknesses in other factors like equity markets, rupee depreciation are similar). If we do think this current slowdown is as bad (or even worse) as previous, commodity prices should correct significantly in the next 4-5 months. Albeit it is also pertinent that this time around (over last 2 years), the rise in commodity prices was more gradual and not as steep as in 2008, so the fall could also be gradual!!!!. This commodity slowdown could in turn have a positive impact on the domestic inflation numbers.

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Manshu September 25, 2011 at 9:23 pm

Commodities are down quite a bit now with everything from copper to oil, but of course they haven’t collapsed like last time. It doesn’t feel as bad as 2008 to me but if things continue to worsen in Europe the way they are – we may get there in a matter of days.

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