Asia Stocks Sink Amid US Recession Fears

Monday January 21, 6:08 am ET
By Carl Freire, Associated Press Writer

Asian Markets Plunge Amid Pessimism Over US Stimulus Plan; Nikkei Sheds 3.9 Percent

TOKYO (AP) -- Asian stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.

India's benchmark stock index was down a stunning 10.9 percent in afternoon trading, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent, its biggest percentage drop since the Sept. 11, 2001, terror attacks.

Investors dumped shares because they were skeptical about an economic stimulus plan President George W. Bush announced Friday. The plan, which requires approval by Congress, calls for about $145 billion worth of tax relief to encourage consumer spending.

Concern about the U.S. economy, a major export market for Asian companies, has sent Asian markets sliding in 2008.

"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "Today it's because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won't help the economy recover."

My Thoughts

STI fell 6.03%, worst decline ever seen since when I started investing last year.

The blue-chip Straits Times Index dived 187.10 points to 2,917.15, falling below the psychologically important 3,000-point level to a five-month low.

Would encouraging more consumer spending help to revive the economy?

I remembered clearly taking economics in my A levels class. GDP=C+I+G+(X-M). My teacher Mr Pillai(very good teacher) mentioned that C(consumption expenditure) constitutes a very large percentage of GDP in the US economy. Basically the US economy is stimulated by large consumer spending, so might Bush's policies work? Short term maybe, by generating more income for companies, but not long term. The policy might even increase more credit card debts and more write downs for banks! People might say "if can I default my mortgage payments, should I also stop paying my credit bills too?"

Solution?

The problem is a lot more complicated than we thought, so to find a solution is not that simple. Saving criticism for comments later, I would like to advise the Bush administration. They should hammer down hard on those who default mortgage payments. Make them sell their cars, houses and assets, anything that can exchange into cash. No house to live? Rent a room or build tent. Still can't pay? Extend their debt payments and impose laws to allocate a % of their income to pay back the debt. I feel that Bush is not focusing into the problem, which is the mortgage defaulters.

Maybe, it's about time to flush out the newbies from the stock market?

Read an interesting posting from Channel NewsAsia forums about this topic. It's really amusing.

Bullish sentiment

Volatile market

Due to the US sub-prime mortgage crisis this year, the market turned bearish for a while. And then the Fed decided to cut interest rates to try to remedy the market causing investors to turn bullish for a moment. Thinking that it's all over? The media decided to add in some bad news and occasionally some good news to enlighten the market of their current situation(it stimulates their income as they sell more papers too!). This brings investors on a roller coaster ride. Weeee! Woooo! Ahhhh...............!

Bearish sentiment

Newbie

In terms of experience, I'm still a newbie as I have only started investing early this year with real cash. However, my investing mindset does not put me in a newbie position. I'm value orientated while most are in it for a quick profit. I've been eagerly reading up investment books for the past 2 years which taught me to invest for the long term and not speculate. I also learnt to analyse financial statements to make good investment decisions.

If you noticed, most decent company stocks especially small caps increased 1-2 times from the start of the year. Some stocks have even rose 6 times their initial price! No wonder those aunties, uncles and Ah Dis(young boy, like me) are bragging about their investment profits. It is easy to make money in a bull market as most stocks will rise(like how hot air rises) and not much skill is required. One can make some profit by throwing darts to pick stocks. However when you are in a bear market, its a different story. Newbies will panic when prices start to drop fast. One of the irrational things they do would be to follow the herd and sell at a loss. Worst still if they used leverage like contra or margin, their losses would be higher.

The bull climbs up the stairs of the building while the bear jumps out of the window.

As a value investor, if the fundamentals of the company does not change and the price is cheaper now, I would increase my positions.

Conclusion

It's time that newbies learn a lesson not to speculate and look for hot stock tips. They should do their own research before buying. In the long run, they would do reasonably well provided that they don't buy at rocket prices. Whether they can beat the market in the long run is another story.