Global stock markets continued under selling pressure and in downtrend as investors still concern about the European debt issue despite trillion USD bailout package being proposed. The Euro staying low between 1.20 to 1.24 range against the greenback. US and Asia economies still improving with recent economic data despite the European issue but stock markets globally has fallen with China dropped more than 20% from its peak this year, HSI and US markets at least -10%. Singapore does not spare the drop but to a lesser extend. With yesterday close of 2,774.54, it has dropped 8.64% from its recent peak.
Analyzing the current event happening, the Europe crisis is pretty much similar to the 1997 Asian financial crisis with an additional dimension. During the Asian financial crisis, each of the country has their own currency while for current case of the Europe, the European countries are all peg to the Euro. The European crisis will hurt the Europe economy nevertheless and countries like Greece might even re-enter recession with its huge debt. Other European countries like Spain, Portugal and Italy also facing debt issues. The European banks from UK, Germany and France are those who have first level of exposure to the Greek's debt and if these banks take hit from that, the economy recovery of UK, Germany and France will be affected. Europe as a whole will expect flat economy growth in the next 6-12 months. US banks are the second level of exposure of the Greek's debt.
Current situation, if Europe is able to contained the debt issue before it spills out, the rest of the world will not feel the great impact and shall continue their economy recovery. However, if that can't be contained and spilled out, US will take hit and if economy recovery of the US slows down, Asia countries will face the pressure of recovery too. Worst case scenario is Europe re-enters recession thereby dragging US down and hurting Asia countries and globally will face a double-dip recession.
The low Euro will be low for times to be. On a positive view, the weak Euro could help to recover European economy. Europe is renounced for its tourist attractions due to their long history, branded fashion and luxury cars are also from Europe. With the weak Euro, this could attract tourists spending and more export of the fashion products and cars.
Investors should keep all options open at this moment of time. Possibility of Europe goes into recession, US and Asia countries might or might not get affected. As the Europe debt issue will not get solve overnight, the situation could drag on for months.
Long-term investors could take opportunity to slowly accumulate as presently Singapore economy fundamentally stil strong.
Short-term investors will continue to face with volatility in the stock markets and a possibility could be trading according to the trend of the market. For really short-term traders, advise to be fast in taking profit to minimize risk.
