Wednesday, February 22, 2012

After Greece, What Next ?

The much anticipated Greece's second bailout has been concluded with Greece getting 130b euro with condition of Greece must cut their debt to GDP ratio to 120.5% by 2020 with austerity measures.  In addition, private investors will have to take a bigger haircut than the 50% as reported last year.  The Greece's debt as of now is temporary out of the mind with the bailout but questions still remain in the longer term.  Greece already in recession with GDP -6% and unemployment rate hitting more than 20%.  The austerity measures that needed to secure the bailout will not help to reduce the unemployment rate, spur economic growth and most important social issues.  Questions also being asked can Greece meet the 120.5% debt to GDP ratio by 2020 and possibility of further down the road another bailout might require or default.  On the surface the bailout appears to be good news but the underlying might not be.  Therefore, investors still need to be cautiously optimistic about the global economy.

Comes end of February, Singapore earning season more or less comes to an end and stock market might not have any news/events to look after apart from the standard monthly economic data.  Traditionally, fund managers use this period to do portfolio adjustment, that is adding more those can outperform for rest of the year and selling off those underperform.  Hence, stock market consolidation or range bound will be common comes March.  Many are looking at STI 3000 level, much debate about whether can that support hold.  I must stress STI 3000 is just a figure, nothing much of significant, investors should not just focus on that to buy or sell stocks.  Instead should focus on the stock itself, its fundamental and its valuation.

There are still investors ( even funds ) still sideline and taking of when to re-enter the stock market and rather than trying to guess or pick where the bottom will be this time round, would be better off, take a time frame of 3 to 6 months and adopt dollar-cost-averaging method.  Focusing on stocks with good fundamental.  Stock market is not back to the super bull days and no need to chase the stock.  The super volatile and scary moment last August till October also probably over hence what investors need now is patience to wait for the price to buy and also patience to wait for the price to sell if still holding.

As mentioned before, from laymen point of view about what price to buy take the analogy of buying a kopi.  Singapore kopi can cost from $0.50, $0.60, $0.70, $0.80, $0.90, $1.00, $1.11 and $1.12 across the island.  The higher the price, the easier you can find where it is selling and vice versa.  Similar to stock prices, the higher the price, the easier to buy.  The most important is on an individual basis, what price you are comfortable to pay and willing to buy.  Example if you don't mind paying $1.00 for the kopi and given the fact that you know there are $0.80 kopi selling and other people can buy cheaper than you, then you must stomach the risk of kopi selling $0.80.  The underlying of knowing what price you willing to pay for will indicate how  your risk level are and that is important.

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