Saturday, May 14, 2011

Market Analysis -- 14th May 11

The global economy or stock market is entering a transition phase.  Since the recovery in 2009, Asia countries have sharply rebound in economy and stock markets leading the rebound for global economy to get out of recession due to the US sub prime issue.  The sharp rebound did come with a price that is the rising in inflation.  For past 6 months, Asia countries were focusing to curb the rising inflation.  Inflation and economic growth can never go hand in hand.  The need to curb inflation will dent economic growth and strong economic growth will normally have inflation coupling with it.

While Asia countries were fighting to tame inflation for the past 6 months, Western countries on the other hand are still slowly recovering from the economy ( US high unemployment rate and Euro zone debts ).  In April, ECB started to hike interest rate to tame inflation and Asia countries probably see the peak of inflation.  Lately, US inflation also slowly creeping up.

Global economy should be entering a transition phase now whereby Asia countries are peaked off of inflation while Western countries are facing what Asia countries were facing 6 months ago; rising in inflation.  This event does lead to good and bad news.  The bad news is expecting Western countries to combat the rising inflation for the next 6 months with measures such as interest rate hike.  The good news is should Asia inflation peaked, Asia countries should be able to re-focus back to economy growth instead in the second half of the year.

During this transition period, stock market is expecting to be volatile as sensitive to both sides of the news.  Curbing inflation from the Western countries will short-term caused bearishness to the market while re-focusing back to economic growth from Asia countries will be good for the market.

The transition period could last 3 months and during these periods, short-term investors have to be very cautious while long-term investors should start to re-focus back to Asia stock with every pull back is an opportunity.  Volatile stock market can cause the market to swing +/- 10% and investors should not be panicked by such a wild swing.

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