Tuesday, February 27, 2007

Market Correction

Today, the US Market reacted severely to the correction in the Chinese market of approximately 9%. The emerging market funds took a severe hit - declining by about 7%. The emerging market funds declined more than needed as it has only 11% exposure to China. The Korean stocks are undervalued compared to the SP500 and the market overreacted.

Overreacted is the right word as the fundamentals dont support the declines we saw today. The oil prices went up but the oil and oil services stocks declined with the broader market. The SP500 index was not overvalued before today's sell-off and it isnt overvalued now. There was panic selling all across the board with broad helping from automatic stop loss orders.

It didnt help that Alan Greenspan thinks the business cycle is peaking and the US economy is headed for a recession at the end of 2007 or early 2008. Some of the emerging markets - especially China, India and Mexico was ripe for a correction. Even though the prospects for emerging markets still remain very good. A correction is healthy and welcome as it prevents overheating and takes speculators out.

I expect the US market to recover somewhat in the next few days but it probably wont return to its previous levels till later in the year when the economic outlook becomes clearer.

I am holding tight and building up my cash position. I am expecting some great buy opportunities to be available in the upcoming months. It should be possible to buy great companies at bargain prices and I am looking forward to the opportunity to load up the truck.


Anonymous said...

Let us know when u buy, since this seems like a nice buying opportunity

Anonymous said...

There are individual securities that are appealing but I expect this situation to last for some time and possibly get even better opportunities to buy