Asian markets look to be stabilising now. I believe most of the fear and panic over the Euro has been priced in by now, and nobody really believes North and South Korea will go to war regardless of how antagonistic the two sides might sound. (If they were fighting you would have thought they have started by now already rather than just trading harsh language).
The key issue which has plagued markets in recent weeks, the falling Euro and the huge debt problems facing Greece, and other countries appears to be ebbing. While it is by no means resolved (it will take some time to clear up their debts), there are enough actions taken by the European governments such that the markets have been reassured. So, while we are not exactly seeing any big rebound in the Euro, it is at least no longer in freefall.
The meltdown in Europe markets and the earlier fall of the Euro did do one thing, it scared the governments in the EC so much that they rallied together to come up with a huge package and more. Because individually, the bond markets were punishing the weaker EC countries as well by driving up the interest rates they needed for further financing of their bonds, many countries other than Greece all got very nervous and a wave of measures were taken by EC governments to cut costs, rein in spending. Basically, everyone was afraid to be the next Greece, and so, fell over themselves to show that their governments were taking active measures to cut down their debt.
All this while, economic data from US and Asia continues to be encouraging. In the US, the ISM’s nonmanufacturing purchasing manager’s index continued to stay above 50 (at 54.4) in May, which continued to signal expansion and growth. Singapore‘s manufacturing also expanded in May for the 13th straight month. One of its components - new export orders index hit a high of 55.4. Another reason why I believe markets are stabilising now is that the sell off has made stocks cheap again. Asia ex Japan markets as a whole are now at valuations of 12.7 times PE ratio for 2010 and 11 times PE ratio for 2011.
Asian companies are mostly reporting positive and growing earnings, while trading at below 15 times valuations in a generally improving economic backdrop. So, while the recent volatility focused investors attention on the negatives, and drove markets down, you can’t ignore fundamentals forever. Asia is taking the lead coming out of this last recession and since Asia is not saddled down by the debt problems which plague a fair number of developed countries, this lead will widen in the coming years. This shift of economic power towards Asia is going to continue, and it will be one of the main reasons why I continue to be bullish Asia for the long term.
As such, I am not afraid to buy more when the markets go through a correction. To be honest, I didn’t much want to look at how my holdings have dropped last week, but I still went in because psychologically, the more unpleasant markets may seem, then that means the cheaper they are, and hence the more opportunities. Take Technology. While Apple is selling so many Ipads that it is delaying some of its global launches because it won’t be able to keep up, yet Technology stocks got sold down along with everything else as well in recent weeks.
So, while you might feel lousy about looking at your investments now, remember that the best buys are made after a selloff when everything is cheap rather than at the height of a bull market when everyone is making tons of money. We have just had such a selloff, and markets have now started to stabalise. so it is now a great time to start looking for bargains!
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