Equity Thursday : Watching For Casualties
There is a twinge of sadness when you observe that since 1 Oct, 162 companies made new lows in their stock price in the STI.
The rest of the STI is holding up well with the index unchanged year to date after a 3 month losing streak.
Yet with headlines blaring that this is the worst turmoil in 4 years. http://in.reuters.com/article/2014/10/16/markets-global-idINKCN0I50X720141016
There will be casualties no doubt from this in the current global stock rout that is not half as bad as it feels because the S&P 500 is still up on the year and some bond indices are still indicating double digit returns for the year. Hedge funds are usually the first as businesses will follow weeks and months later.
And so the burning question on top of everyone’s minds is Should We Buy Something Now ?
Even my father called me this morning to ask if he should revisit some of the stocks he sold in August.
1. Nobody is in recession…. yet.
2. Nobody is at war.
3. No pestilence, plague or famine … yet.
4. Not much unemployment.
5. Growth will be slow, a fact we knew but ignored. 6. Central banks will be keeping monetary policy easy but availability of credit will be subjective so some companies can only salivate at the interest rates.
What has not happened.
1. Credit defaults.
2. Asset markets tanking – the only asset class that has crashed is commodities.
4. Ebola outbreak.
In the scenario of slow growth, companies on a massive expansion spree will be first casualties. Companies that have over invested in new capacity, mergers or over extended themselves in inventory (hint, hint, real estate companies rushing into the building boom).
Even if the sell off is over, I cannot envisage a rush to rally from here. And without another QE in the cards, there is little
We will have ample time to pick and choose as we wait and watch for the first casualties.