Monday, May 15, 2006

Market commentary

Today was one of those days which makes me wonder if I should be making any investment decisions at all.

Asian equity markets took a hit. In Hong Kong the Hang Seng index fell by more than 400 points in one day.

Silver has fallen by US$0.98 per ounce, also in a single day.

To round it off, there was a report in the papers today about the Hong Kong property market cooling in the face of rising interest rates.

Is this the beginning of an economic slowdown? We have had 2-3 very good years: stock markets, property prices and commodity prices have all provided what are outstanding returns by historical standards. Most of the economic indicators that are perceived as having a material influence on investment makets have been favourable: employment growth has been strong, inflation (the offical numbers at any rate) has been low, interest rates have been low by historical standards, consumer spending has grown, capital is readily available and relatively cheap and the list goes on.

So why would things slow down now?

Interest rates have risen. They are still low by historcial standards, but have advanced to the point where borrowing costs are now materially above the yield on most properties and shares. Prices have had a good run and in many (but not all) markets valuations have become stretched. Many people (myself included) have concerns about the United States currency and housing markets. Given the huge role that the US economy has played in the world economy in the last few years (both as a source of demand for consumer products produced elsewhere and as source of capital for the world), any problems wth the US economy could have important negative consequences for the rest of the world. Lastly there is growing concerns about the possibility of another war in the middle east over Iran.

What to do about a downturn? The short answer is nothing. I have no plans to sell anything (possibly excepting my silver). I do not want to attempt to time the market. If there is a downturn in the markets (either with or without an economic downturn), I will view it as an opportunity to acquire assets at better prices (i.e. yields) than at present. If all else fails and I am losing sleep at night, I can just start paying down debts at an accelerated rate.

No comments: