most of you must be longing for some updates after recent events in the us and a very volatile stock market.
usa
this country is famous not just for democracy [claiming to support human rights etc], but also for a series of economic mishaps that affect the rest of the world. just to quote a few cases within a short span of a century:
- great depression during 1920-29;
- sovereign loan problem [of latin america] in the 70s led by citibank;
- savings and loan crisis in the 80s, the rescue of which cost us taxpayers billions of dollars;
- LTCM crisis in 1998;
- internet bubble in 2000 when nasdaq reached 5000 only to fall back to 1100 in 2003 and still hadnt fully recover;
- waging war on afghanistan and iraq costing billions of dollars of govt deficit and indirectly encouraging corruption both at foreign and us govts.
- housing [the subprime] bubble created by Greenspan ever loose interest rate policies.
how will us markets pan out is anybody's guess? but taking a look at DJ and Nasdaq charts [chart 1 and 2] above will give some insights. the third chart is a monthly chart of aussie, it indicates an inverted head/shoulder chart with good support at 81.
what do the 3 charts tell us?
- chart 3 indicates major corrections before a strong rally of the aussie. since the chart is a monthly one, it will take quite some time for the corrections to reach 81.
- nasdaq also indicates good support at 2150 also with inverted head/shoulder chart reaching a max of 3150.
- dj should also have strong support along the band 10000-11000 [lasted 2 years and more], but it had already reached the minimum magnitude under an inverted chart breakout [at 11000, bottom is 7500 which gives a 3500 points rise above the neckline 11000 reaching 14500 - current peak is 14000, pretty close] which makes it tricky to predict its future.
should job growth continue, the fallout from subprime [a 20% downturn is likely] can be contained as long as inflation is mild.
china
apparently H shares are always engineered to have 50% profit growth in their first year of ipo, thus the ipo subscription price looks subdue.
if you check out a number of H shares in the past year or two, those that rallied 2 times or more, they either have listed as A shares or have chosen to do so but no announcement yet. china coal [1898] is a good case in point, it got stuck around 8 but rallied to 15 and announced it will list as A shares too. why the rally? - to avoid dilution since the funds from A shares are not needed short term, so they can generate little at the bottom line and would only dilute and drag down EPS, one way to avoid such dilution and foot dragging is to boost the share price to compensate. china mobile shouldnt have rallied to 90 if it choose not to list as A shares, it will soon if it hadnt announced yet.
it is interesting to find out why china allows A and H shares to co-exist. since its capital account is closed and with two class of shares, even talks [with no action yet] in the future about merging the two will introduce arbitrage and shock to markets on both side of the border before the capital account is open.
this kind of uncertainty is unnecessary, A/H is very similar to A/B shares introduced long ago by the china securities authority. now they have to figure how to handle the two - A/B since they are exact duplicate other than the nationality of the owners behind them, but there is a huge gap in their pricing by the markets.
the us fallout could be a gain for china since the effort to suppress speculations in both [stock and housing] markets need not be as heavy handed as it would without a us fallout.
those of you who would like to read what to do should the us fallout turn out to be a major crash this time round can read more about crashes at this website - http://www.stock-market-crash.net/
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