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There is alot of talk about the Greek bailout talks over the weekend and today. It consumed a good portion of financial newspapers and web sites. I do not disagree that this is a large development and the fate of Greece in the Euro zone it at stake, but lets not let this cloud out changes in other parts of the market, that is often when bubbles burst and opportunities are missed.
Turkish elections have created a divided parliament that has roiled stock markets and the currency. While this will create more tensions in the near term it is good to check the consensus view that has been emboldened the AK party over the the years. In time there could even be longer term opportunities from this as parliament will have to work on consensus building through legislation that is agreeable to both sides such as boosting the economy. More talk of the Chinese market becoming a bubble with the indices up again at the start of the week. With many in China thinking this is a Government led rally in stocks, very few are hesitant to lever up and enter into the marketplace. The amount of investments that the Chinese people have are limited so you can see more pronounced moves asset classes such as housing, and now stocks. Should the government look to allow more freedoms in the investment landscape there could be a flight out of the country to other locations in search of safer returns and to eliminate country risk. This could be the cause for a drop in prices there that could cause margin calls and investors to stumble on each other to get out of the market at once. US markets brought in another down day, nearing the break even point for the DOW and S&P for the year. This comes from alot of the good news spooking investors that a rate increase may come along this year as opposed to the recent view of not until 2016. This puts investors in the conundrum of good economic growth raising the equity markets and the Fed raising rates, pushing alot of speculative capital out of US equities to put elsewhere.
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6/1/2015 0 Comments More up days in China Shanghai stocks are up over 4.5% on Monday and positive Tuesday morning, keeping with the trend of heightened volatility. Add into this the Threats that are looming in Europe about a deal with Greece and it is surprising that there isn't more worry being built into the outside market over these signs of risk apathy. With the markets still looking to the upside I am more convinced that the rally is in a self reinforcing trend. While this is the most dangerous time to try and predict when a fall will occur, it is important to know when things get shaky where risks lie. The only way I see this amount of confidence in Chinese markets now is in the case that investors think the government is managing the rally in equity markets to help companies raise capital through equity as opposed to debt. This could be why there are so many companies in china "going tech", changing their traditional manufacturing companies into on-line casinos or renewable power companies. This is to take advantage of the fact that tech start-ups are seeing the best of this rally while banks, a more accurate measure of the overall economy are relatively flat. Surely a divergence is at hand and will have to correct eventually.
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June 2020
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