EOD Update (17 May 2006)

Today saw relative under-performance on Bursa Malaysia compared to strong recoveries in other Asian bourses such as Japan, Singapore and Hong Kong. The DJIA looks set for more trouble ahead though. Does this mean trouble for Asian equities and, more specifically, Bursa Malaysia?

For an extremely long time now, the world has looked at the US markets as an investment barometer and taken its cue from there. However, over the years, global currents have changed dramatically and many new factors have emerged, such as the explosive growth of China & India, the breakup of the Soviet Union, the formation of the EU, the increasing importance of Brazil, Mexico & Chile in Latin America, the defiance of yet other Latin American states such as Venezuela and now, Bolivia, to US policies and yet through all this, the perception of the US markets and the DJIA as an all-important indicator for the world to take note of has not changed.

Throughout this period, the US has become the world's largest debtor and consumer nation, while also being the largest user of the earth's energy resources. While this in itself is not necessarily a bad thing, the worry is that a large part of its spending has for decades gone to non-productive uses, such as the never-ending R&D and production of high-tech armaments and financing of numerous "conflicts" around the globe. I don't intend to turn this blog into a doomsday prophecy or something anti-American (which I'm not), but something's gotta give and I think it will be sooner rather than later.

As I said the other day, my guess is that US equities have no more room to move upward and will be on a long-term downward trend now. This follows the continued weakening of the USD which actually started many years ago. The crucial thing is how fast the bust-up in the US happens. If it's gentle, then the case could be argued that Asian equities will be a natural choice for some of the global funds leaving US assets. This could already be happening now, just look at what happened to the USD/RM over the last 2 days. The US will then have a soft landing and Asian markets should rise.

If the US markets fall at a more dramatic rate, then the old bugbear of Market Sentiment will likely prevail and drag Asian markets down as well. We could then be in for some rough times ahead, until people learn to forget about the DJIA, S&P500 and the NASDAQ indices and evaluate Asian markets based on their own attributes.

If the USD and US markets implode in a spectacular show of fireworks, then all hell will break loose. We're talking about trillions in USD foreign debt, corporate bonds, equities and derivatives held by global creditors/investors. There will surely be far-reaching implications beyond mere market sentiment, since the US also accounts for a huge chunk of the world's exports.

So the thing now is to hope for a soft landing for the US and during this process, for global investors to move away from its fixation with the US market indices, because as someone mentioned to me the other day, "the US ain't what it used to be anymore". Maybe this applies even more to an index made up of 30 stodgy, old-world stocks.

Latest purchases:

OILCORP: +10,000 (1.46) ... Total 10,000 (Back in again for 2nd round...)

TAMCORP: +10,000 (0.30) ... Total 32,000


/ichithekiller