After the drop in markets last week, today saw another major selloff. Markets are getting spooked with the heavy selling. There isn’t really a major reason. But nevertheless, people are pointing to China tightening was the major culprit, with the new US proposed regulations on the finance sector as oil on the fire. When people want to explain a selloff, any reason will do.
China has been talking about tightening since last year. If we are worried about asset bubbles forming in Asia, then what they are doing right now is exactly what is needed to cool down a red hot economy that is in danger of over heating. But cooling the economy comes with less liquidity, and so, people are selling off in reaction to that. On a fundamental level though, China’s economy may now be allowed to continue a high rate of growth without necessarily having asset bubbles developing and bursting, bring all that growth to a big halt.
For investors who had been waiting for a correction so that they can buy in again (for those that missed the boat in 2009), now is a great time. Right now, it is a lot of negative sentiment and fear which is driving the selling. It isn’t because economic fundamentals haven’t been improving. The latest numbers for Singapore industrial production just came out, and those were great. Manufacturing output increased by 18.1% in December on a seasonally adjusted month on month basis. And that is the first time we had an increase in the last 5 months. The electronic and chemicals output all saw double digit increases (electronics output up 57.3% yoy, chemicals output up 27.7% yoy). The external environment is improving.
So why have markets been going down this past few days since last Thursday? Heavy profit taking and fear is driving this. The investors that went in last year are sitting on hefty gains, the last few days have made them fearful and some want to lock in their profits. I didn’t wait till now, I already rebalanced my portfolio back in December, I hope many of you did as well.
Now is the time to look for bargains. I will be monitoring this closely. When most of the markets are down 10% from its peak this year, I will shift some money from my bond funds over to equities. If markets pause after this round of corrections, then regain their confidence as economic fundamentals continue to improve, we will see a strong rebound. Fear and negative sentiment could push markets down 15% to 20% even from their peak, but if that happens, I will shift close to all of my bond holdings into equities. It would be a rare opportunity and I firmly believe that if that opportunity happens and is presented to me, I would jump at it.
Looking at your holdings, you won’t be very happy, especially if you have been monitoring them every day. Seeing them drop daily can be depressing and scary. But market cycles are common, and market corrections can easily see the market shift down 10% or more. Just remember, the best buys are made when everyone is selling, not when everyone is buying. So, if you are feeling rotten about how markets are doing now, yet you dare to buy, just like I did last Friday, it might not necessarily be a bad thing. Another thing to remember, you can’t always get it exactly at the “bottom”, somewhere near is good enough. The boat which was originally departing has come back for now, would you board it?
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