Nearly two months on, the repeat theme has played out nicely with Hang Seng rising from there to the peak by around 10%. For those who made money out of this rise, it should be the time to re-evaluate whether or not it is still justified to hold on with the risks.
The election in the US yesterday was clear a bad sign with Democrats claiming the President and Senate while the Republicans got the lower house. This unchanged setting basically tells us that NO way we will have a full resolution in fiscal cliff on time. The best case is muddling through with some sorts of half year extension in tax cut.
I am turning bearish here with the fact that uncertainties in the market are growing. Today we have the national congress in China, but my real concern is still in Europe.
After the US presidential election on the 6th, the National Congress in China on the 8th (Today), the market will face the Eurozone finance ministers meeting on the 12th and the Catalonian parliamentary election in Spain on the 25th.
The Greek Prime Minister Antonis Samaras said that his government would run out of cash on the 16th of this month if the Eurozone finance ministers couldn’t make the decision to release another tranche of aid during their meeting. The case for Greece has always been a game of brinkmanship and it may actually turn out to be fine. However, the market will need to deal with another European country further down the road. Catalonia, the autonomous community of Spain which has been trying to gain independence, will have the regional parliamentary election. The victory of any anti-Spain party would cast doubt on the fourth largest economy of the Eurozone.
The updated chart from the repeat theme on Hang Seng hinting a peak in November looks scary too, doesn't it? |
| Source: Reuters, click to enlarge |
The real risks to this short-biased view is that new Chinese leaders after today, namely Xi and Li, somehow feel the the urge to do something to boost the economy.
But the upside is that if there is no stimulus after the 18th National Congress, what the market has been expecting, building into the price in the past 2 months seems groundless and reversal is due to come.
About the fiscal cliff...I hold the view that there's be an 11th hour compromise between both parties. Because politicians of any party (who's job it is to come to a compromise) like keeping their job. And who ever coined the term 'cliff' has nonetheless made it a bad thing. Does it have to be? I read somewhere it also means a 70% reduction in the US debt...which would be a good thing right?
ReplyDeleteTotally agree. Somehow they will at least come up with a plan that extends those tax cuts for few months more. And surely if the US really falls off the cliff, those special subsidizes sent to the unemployed since 2008 will be cut, which will in turn force people to come out to work again and curb the falling labour force participation rate...And the debt level will come down as well.
ReplyDeleteIt is really a question of long-term gain Vs. short-term pain for the economy. But when it comes to short-term market reaction, last-minute deal is just not good enough. My memory of the debt ceiling thing back in Aug 2011 is just still too fresh that I cant stop feeling worried now!
The uncertainty and the way those stupid politicians handle the issue can be a sufficient reason that sinks the market by say 20%....