A lot of people will be losing sleep watching world cup matches these two weeks. Would it have any impact on stock markets. Overall, I believe volume will be lower. More retail investors might be staying on the sidelines as they devote more energy watching the matches. However, the institutional players and people’s job is to look at markets every day will still be around. What that means though is that if some unexpected news were to surface, we could see greater market movements because the actions of fewer investors will be needed to skew the market in either direction.
Overall though, I don’t expect the world cup to cause markets to fall. There is no fundamental reason why it should. Lower volume does not necessarily mean a falling market. In fact, some large gains in markets happen when volume is low, especially after a drop. In the US, Americans are not really into soccer much, so there would be very minimal impact. It is in soccer mad Europe where we are likely to see the quietest markets, especially since the time zone is similar. In Asia, where the timing of the matches means that most people would be watching the matches at night plus there are few Asian teams represented, it shouldn’t have as much impact either.
One of the biggest contributors to market volatility, the Greek crisis and Euro’s fall has now stabalised. So, on that note, barring any unforeseen bad news, I believe markets will continue to stabalise in the coming weeks. People will be watching upcoming economic data rather closely. If there is reassurance that the turmoil in currency markets and Europe has not affected the global recovery taking place, then we can expect to see a rebound in markets in the weeks ahead.
Sovereign risk remains high though. Right now, any country that seems weak financially can expect no mercy from rating agencies, and currency markets. Case in point, the focus on Hungary, nevermind the fact that it is not even part of the Euro currency. I will be switching my holdings in my emerging market bond fund to an Asian high yield bond fund. There isn’t a lot of choices in the Asian high yield bond fund space yet. Currently, it is just the Fidelity Asian High Yield Bond Fund. That’s fine though, because the fund is a good one. I believe that corporate risk is actually lower than sovereign risk at this point, yet one can get more higher yields from being in an Asian High Yield Bond Fund as compared to being in a “safer” global bond fund.
I will also be monitoring markets for bargains. The current market levels are attractive for accumulation. Asia continues to recover strongly. A lot of the concerns right now are at most minor road blocks for Asia. If we continue at the current trend, economic power will continue to shift from the West to the East. I really like Singapore and South Korea markets right now. Singapore is an odd situation. We are looking at GDP growth of as high as 9%, maybe even higher this year. But looking at markets, you would have though we were in recession. In the end, fundamentals will matter more, so I am looking to continue to accumulate more while markets are cheap as I believe that markets will soon resume their uptrend after stabilising these few weeks.
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