http://www.bloomberg.com/news/2012-05-18/japan-stocks-fall-a-seventh-week-on-u-s-europe-concern.html
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
- Warren Buffett, 2001.
Time to be Greedy now?
Expect more panics coming in June 17th.
(Reuters) - The International Monetary Fund will not return to Greece to review its loan program before Athens holds fresh elections on June 17, an IMF official said on Thursday.
"We take note that elections have been called and we look forward to being in contact with the new government when it has been formed," David Hawley, IMF deputy director of external affairs, said at a news briefing.
Without additional support, Greece may run out of money before the end of June to pay government salaries and social welfare programs. It depends on a 130-billion-euro support program from the IMF and the European Union.
But the IMF only disburses funds if a country complies with economic reforms tied to the program. The Greek public have overwhelmingly rejected the austerity measures, throwing into question the future of the IMF/EU bailout program.
The IMF official repeated the calls from its Managing Director Christine Lagarde for European leaders to reach a comprehensive solution to the euro zone crisis.
The IMF has called for four actions - strengthening of financial defenses against contagion, measures to support demand in the short term including an accommodative monetary policy, country reforms to promote competitiveness and a clear plan for euro area integration and risk sharing.
Hawley said that the European Central Bank has further room to support growth by lowering its key interest rate, given the weakening economic conditions. Growth has stalled in the euro area and several countries are in recession.
"Further unconventional policy measures could also be needed," he added.
The ECB has already bought bonds aggressively but Germany's Bundesbank has resisted cutting its benchmark rate below 1 percent or buying more bonds, insisting instead that indebted countries rely upon reform programs to rebuild market confidence in their economies.
Hawley declined to comment on the worsening stress in the European banking system, and liquidity problems at some Greek banks. Depositors have accelerated withdrawals from Greek banks in recent days amid speculation Greece may leave the euro zone.
(Reporting by Stella Dawson. Editing by Bernadette Baum)
The worst is not over. Be patient.
more exciting than watching a movie.
Greek Tragedy
Greek god of the sea, Poseidon, controls tides, currents and waves. But the economic tides of men, market undercurrents and ultimately the waves that will buffet the world economy will be in the hands of the Greek People
Q: What's going on?
A: GREEKS have rejected the austerity measures insisted on by the European Union (EU) in return for spending billions to bail out of an economic crisis.
The current government is unable to form a coalition because the austerity measures are hard for the Greek to stomach, as measures will bring about mass unemployment and a drastic fall in living standards.
So the Greeks will vote for a new government next month. The vote is seen as a referendum on whether the country should remain in the EU.
If they vote for anti-austerity parties, Greece may decide not to repay its debts and leave. This will cause turmoil in the 27-member EU and the 17-member eurozone, all of whom use the euro as currency.
Markets worldwide, already jittery, will react and the economic fallout will affect the rest of the world, including Singapore.
Q: Why is Greece in trouble?
A: THE government had been spending more than it was earning for a long time.
For example, public sector wages rose 50 per cent between 1999 and 2007 - far faster than in other EU countries.
But this wasn't matched by tax collection (government income). Its income was hit by widespend tax evasion.
So, after years of overspending, its budget deficit - the difference between spending and income - spiralled out of control.
When the global finanical downturn hit. Greece was caught out and found itself unable to cope.
Q: What do the Greeks Want?
A: GREEK public opinion seems to be all over the place.
Polls show that some 80 per cent of Greeks would like to stay in the EU, but they also don't want to agree to the austerity measures that are part of the bailout deal, especially with their unemployment already at 21.7 per cent.
Q: Is light at end of tunnel?
A: EUROPEAN leaders are hoping that the Greek economy will slowly begin to recover thanks to the wide-ranging reforms insisted upon by the EU and IMF, allowing Greece to make its repayments and, once again, stand on its own two feet.
Q: What help does Greece have?
A: THE EU bent over backwards to help because it feared the finanical crisis would spread to Portugal, Spain and Ireland.
In May 2011, the EU and IMF provided 110 billion euros (S$177 billion) of bailout loans to Greece to help the government pay its creditors.
Another round of 130 billion euros was pumped in this year after things did not improve, and Greece's private creditors agreed to write off more than half of the debts owed to them.
Q: What are the implications?
A: IF GREECE refuses to pay off its debts, investors will worry that other highly-indebted nations, such as Italy, or those with weak economies, such as Spain, will do the same.
If worried investors stop buying bonds issued by these governments to service their debts, then they will not be able to repay their creditors.
This creates a vicious circle.
To prevent such a disastrous consequence, European leaders have agreed to a 700 billion-euro firewall to protect the rest of the eurozone from a full-blown Greek default.
Banks are another problem.
Greece owes billions to French, German, UK and US banks.
If these banks are forced to write off more money than they already agreed to, it would lead to a credit crunch as they would be reluctant or less able to lend money, thereby hurting the global banking system.
Q: What does it mean for S'pore?
A: SINGAPORE is certain to be impacted if Greece leaves the EU.
Bank of America Merrill Lynch Economist Chua Hak Bin thinks that the risks of this year's gross domestic product (GDP) growth coming in at the low end of the government's 1 to 3 per cent forecast are now higher.
A deepening of Europe's debt woes may stall Singapore's growth recovery, he said.
A likely drop in the euro, while making imports from Europe cheaper, also makes Singapore's exports more expensive to Europeans.
This would worsen the already weakened export demand from a region facing recession, said Mr Kelvin Tay, chef investment strategist of UBS Wealth Management Singapore.
THE EU27 (including UK) remains Singapore's largest non-oil domestic exports (NODX) market. It accounted for about 15 per cent of all NODX last year.
Latest developments have had an impact on "already fragile" sentiment, said Singapore Business Federation chef executive Ho Meng Kit.
"Singapore companies are both directly and indirectly exposed to countries in the eurozone, and the current impasse will have a bearing on businesses," he said.
"These developments in Europe will introduce even more uncertainty to the global economic situation."
Source: BBC, Washington Post, Business Times
News,The New Paper, Friday, May 18 2012, Pg 22-23
Originally posted by ericgo:http://www.bloomberg.com/news/2012-05-18/japan-stocks-fall-a-seventh-week-on-u-s-europe-concern.html
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
- Warren Buffett, 2001.
Time to be Greedy now?
Greek tragedy: Don't cry, time to buy
Many stocks in Europe, China and the US can be picked up at bargain prices now, say analysts
If there has been one constant worry on the minds of most investors over the past two years, it is the ongoing euro zone crisis.
It all started with Greece asking for a bailout in the middle of 2010 to pay its mountain of public debt, and has lurched from one crisis to another, keeping markets volatile in the process.
Next month, the euro mess could come to a head when the Greeks go to the polls again to elect a new government, the second round of elections in just months.
Some analysts worry that this could spark another chain reaction of sovereign defaults in various debt-ridden euro zone nations, leading to another financial crisis similar to the one back in 2008.
Others believe that those fears are overstated and that policymakers can manage the situation.
Markets will be affected but does this mean that investors should bail out of their positions now? Or are there opportunities in the making?
A Lehman Brothers moments?
Not for the first time in the ongoing saga, politics rather than economics will be the main factor driving markets.
When the Greeks go to the polls on June 17, the biggest question that analysts are asking is whether Greece will vote to stay in the euro zone or leave the monetary union.
The biggest problem is that no one, both within the European leadership and outside, seems to have a firm idea of what might happen, said Mr Mark Matthews, the head of research Asia at private bank Julius Baer.
"Leaders have been sending out mixed signals that do little to settle markets, or give clarity to what might happen," he said at a recent seminar.
If the Greeks vote in a party which favours renegotiating the terms of the bailout package they have reached with international creditors, the likelihood of their leaving the euro zone will be high.
This could lead to contagion affecting other heavily indebted European countries, especially the large economies of Spain and Italy.
Essentially, investors could dump the bonds of these countries, sending bond yields up, and leaving these countries with even less means to pay off their debt.
A whole host of other complex financial instruments, such as credit default swaps, could be triggered, affecting financial institutions and insurance companies.
In short, there could be a high risk of a "Lehman Brothers moment" if Greece's exit turns disorderly, said Mr Gerard Teo, head of strategy and currency at Fullerton Fund Management.
Back in 2008, investment bank Lehman Brothers collapsed, leading to the global finanical crisis.
On the other hand, if the pro euro zone parties secure a majority in the Greek Parliament, there could be a bounce in the markets, said OCBC's head of wealth management, Mr Wyson Lim.
"However, this may only be a temporary reprieve as the problems in Europe are deep-seated and complicated and will take years to resolve."
Indeed, even if the Greek problem is resolved, question marks still linger over the larger economies of Spain and Italy and their ability to pay their mounting debts.
Opportunities sprouting
Given the risk of another meltdown in the markets, not many analysts would advise investors to pour money into equities.
But the time to be brave could be right now, just when fear is rising, say some fund managers.
Mr Hugh Young, managing director of Aberdeen Asset Management Asia, said that this could be a good time to sink some cash into the markets, provided the investor has a long-term horizon.
Similarly, Mr Tim Stevenson, Henderson Horizon Pan European Equity fund manager, notes that valuations of European equity markets are at 30-year lows.
In fact, he believes in investing in European firms, quality companies that will be able to ride out the political crisis threatening to engulf the entire region.
But if walking into the lion's den is too fightening, then other markets also offer potential opportunities.
The Chinese stock market has been in the doldrums for the past two years and has underperformed its Asian peers.
But analysts are now saying that the beating it has taken of late makes that market one of the cheapest out there.
And although its economy has slowed down, analysts are now paying attention to whether Chinese policymakers will embark on another round of stimulus to prevent the economy slowing down too much. This could provide a fillip for the stock market.
Investment banks such as Morgan Stanley, for instance, believe that the "bear phase for equities has ended", especially for mainland Chinese and Hong Kong stocks.
Morgan Stanley is expecting the Hang Seng Index to rise to 23,600 by the end of the year, from the current 18,608.05 - a 26 per cent rise.
In a note to investors, Phillip Securities Research also said that it believe the markets could experience a short-term bounce since markets have been oversold in recent weeks.
Another market to watch is the United States.
While economic data out of the US has not been great in recent weeks, Mr Matthews believes that the economy, as a whole, is on a stronger footing.
Manufacturing is continuing to expand, spending has held steady and even the housing market seems to have turned the corner.
The big question is whether the economy can create enough jobs to reduce unemployment further, said Mr Matthews.
Citing an academic report, he said that previously when the economy had recovered from a recession, employment tended to recover in a V- or even U-shaped pattern.
This time, US employment has followed an L-shape instead and has not shown signs of recovering any time soon.
Still, he believes that US corporates remain, by far, the strongest and most innovative firms in the world and he is backing them to continue growing profits.
He is recommending a mix of both US value and growth stocks, such as drug firm Merck and tech firms Apple and Google.
The Great Singapore Sales?
There could also be bargains to be picked up right here in Singapore.
Mr Kevin Scully, executive chairman of equities research firm NRA Capital, said that stocks as an asset class, based on current earnings forecasts, are cheap.
"There is no need to panic when markets fall. View it as a buying opportunity - take the time now to identify which stocks and what levels you want to buy and wait patiently," he said.
"But if you cannot stomach the volatility, then shift about 50 per cent of your portfolio into defensive yield plays."
Mr Herald van der Linde, HSBC head of equity strategy, Asia-Pacific, said that in times of great volatility, the best thing is to return to the fundamentals of stock investing.
"Buy only when you see value; be patient and don't rush in," he said.
invest, The Sunday Times, May 27, 2012 Pg 31-32