The 5 Pillars of Life

Though the info below might be a bit outdated due to the last 3 few day of hysterical market drop which wipe off 2010 gains in all markets, I will still like to share my views for the month of April and do take 3 minutes of your time to read through.

1st Minute – Let us go through the indices

a) April is the month where indices continue their gain following the trend in March with exception in Hong Kong which follows the China Market which also took a dip due to the monetary tightening in the country. Both Hong Kong and China are among the worst performing countries in 2010.

b) Gold price surged 6.0% probably due to the expection of crisis coming up.

c) Vix index rose 25.4% in April in expectation of volatility ahead in Europe that that time

d) Baltic Index remains bouyant and up nearly 12% in April. Trade seemingly looks ok and going well.

2nd Minute – Let us look at the Greek Crisis for this month

16th Dec 09 – The Greece Saga began when S&P downgrade the country’s credit rating to BBB+, just 2 notches clear of junk grade due to their huge debts and budget deficits. With credit downgrade, investors will demand a higher yield for holding Greek Bonds.

Jan 2010 – The Greece Government issued more bonds in January 2010 in the open market at a higher yield aims to repay part of their maturing bonds in May 10 and to stimulate their economy which was at a deficit of 12.7%.

Mar 2010 – Germany indicated their reluctance to bail Greece out and wants IMF to be involved. This uncertainty cost Greece Debt Yield spiraling upwards once again. When yield goes up, the value of their bonds goes down and more people will wants to redeem their bonds. Confidence are badly shaken.

11th Apr 10 – EU commit 30billion Euros and IMF 15billion Euros

27th Apr 10 – Greek Credit ratings reduced to Junk Bonds.

2nd May 10 – Greece granted $110billion Euros to avert meltdown

Presently – Investors doubt that these loans to Greece will help them in the first place. Strikes are still happening in the country which will further hurt the country. Eyes are now put on Spain, Portugal and Ireland. If Greece is to default on their debts, this may cause the other countries to do the same. When this happens, financial market in Europe will melt and will pass the effect to US and Asia subsequently.

3rd Minute – Risks and Prospect Ahead

Risk
a) The PIIGS problems are known months before this crisis but there are much confidence in the European Union and the countries ability to avert the crisis independently, especially when the global economy seems to be on mend.

b) The risk will be that EU continues to show indecisiveness and Greece give in to the protestors and decided to default on their debts or to reverse their cost cutting measures. The crisis are partly the result of indecisiveness of EU in handling this issue which result in confidence crisis.

c) The focused on Portugal, Ireland, Spain, and in some cases, Italy, all of whom have high debt and deficit issues. Spain and Italy are far larger and more central economies, and a default by either of them would have dramatic repercussions

Prospect
a) Greece is a small economy, probably forming only 2-3% of the Eurozone economy. The fear is the effect of repercussions in Portugal, Spain and Ireland which forms at least 12-15% of the Eurozone. Ireland current budget deficits stands at 14.3% of GDP, Spain 11.2% and Portugal 9.4%. 

b) The EU had learnt their mistake from the Greek Saga and will do the best they can to induce confidence back into the market before it spread further.

c) The media, speculators and the rating agencies had played a huge role in this confidence crisis. If the EU is able to maintain or even regain the confidence, we can expect things to go back normalcy and market will rise back serveral percentage to original point.

d) I am still seeing good growth in Asia and continual good news in US. They represents the good parts which we might have neglected.

Its probably the World Cup Fever coming that causing the market to drop for a while. (fyi, there is a Correlation between World Cup and Financial Market over the years). Hope I had given you good info. I still believe this is a short term noise and I will rather focus on the US economy instead…