How much are the world markets dependent on US Economy?

Lets take the example of the Asian markets and how they are trading since the start of this year 2008. Jan 2008 has not been a very good start with most of the markets loosing a lot of ground. The markets as of today have dropped close to 20% lesser than what they were in Dec 2007.

All this was because the fear of US heading towards a recession. Uncle Sam heading to recession has so much of impacts all over the world. Its a cyclic reaction. Uncle Sam heads to a recession; the companies start spending less and the americans start spending less. The usual routine is the whole world saves for the Americans to spend.

Only when the US companies spend much on their services, Indian IT grows. Only when the Americans spend; the Chinese market grows coz export grows. Globalization in the recent past has led to a lot of cyclic reactions. The markets in the US catch cold, the Asian Markets cough.

Indian and Chinese markets called as the Emerging markets are supposed to be very good for investement. Now, once Globalization has started, a person sitting in India/London/NY can trade in the emerging markets in the morning (of IST), and then shift gears in the European market and then; have his dinner (investment) in the US market. Now you see how one market can affect/effect the other market.

On 22nd Jan, the Indian benchmark hit the circuit in the first few mins of the trading session, only to recover from that later. However in the pursuit, it had almost hit another circuit before the blue chip stocks pulled it up. Later on, by close it did recover. There were many reasons why the sensex fell, FIIs liquidifying so much to the extent because they had to fund their mother companies. Large caps saw such a down fall that a retail investor could buy them that day and sit on them for a long term.

The US which was on a holiday for Martin Luther King day, was astonished to see this happen on Monday. The fed held a phone conference only to decide to slam the interest rates by 75 points; which was announced after the Asian markets closed at around 0700 hrs EST on Tuesday. NASDAQ reacted a little positive, though not into the greeen area, the announcement for sure made sure that the DOW did not fall further.

The next day, the Asian markets reacted strongly opening quite high and trade steadily throughout the day. The european markets were still open and did gain some momentum once the fed cut was announced.

How much ever the world is globalized or growing, US remains in the centre dictating terms in the market. We will have to wait and see if this ever changes.

Sensex beaks the Circuit Filter - Trade halts for an hour

The exchange in October 2007 had fixed circuit filters for the Sensex. If the index drops 10% before 1 pm then trading to be halted for one hour. If 10% drop is between 1-2:30 pm then trading to be halted for half an hour. If 10% drop after 2:30 pm then no halt in trading.

If in case index drops by 15% before 1 pm then trading to be halted for 2 hours. If 15% drop between 1-2 pm then trading to be halted for one hour. If 15% drop after 2 pm then trading to be halted for rest of the day.

In the case of 20% drop in the index then trading to be halted for the rest of the day.

Today, the circuit was broken in the 1st 2 mins of the trade! The trade was halted for an hour till and resumed at 10:55 AM (22nd January 2008). The benchmark kept flickering till the Finance Minister gave an assurance of Liquidity in the market and in one of the interviews expressed his confidence over RBI and other banks that there was good amount of liquidity to be offered for brokers and investors.

Good god and then the markets recovered considerably and avoided another circuit break which would thus halt the trade for the whole day!

I heard here and there rumors among my colleague and frnds, that they have lost so much and so much in the trading today. One of my frnds lost considerable amount in margins/derivatives and was running around in havoc trying to arrange money for tomorrow's margins.

But by the end of the day; the market stabilized considerably taking into account the magnitude of fall to end close to 700 points down to yesterday's close.

The Sensex needed this correction as trading at such a high figure of 21k+ was certainly not the economy of India. India by par stands somewhere around what the Sensex is as of today. I would say that 16k to 17k is the economy of India as of now. No matter the amount of corporate strength or corporate taxes is being pulled in, mid 16k is a good number for India.

The causes for this correction can be attributed to many as I have been reading by some famous columnists.

It is partially because of the US fear of recession. Fed is meeting early next week and there was a hope of another 75 points cut on the interest rate. But, by the time I wrote this article, Fed announced a three-fourth points cut as expected!! 75 points interest rate cut. Now the Interest rate stands at 3.5%

We will have to see how the US markets react to this. If there is any up in the market, you may well see a huge plunge towards the positive side morrow in the Indian Market. Sleep late and tight; wake up at 9:50 AM IST and see the Indian market.

The market also seemed to liquidify the equities to cater to the biggest IPO of Reliance. It is also told that this can be a major reason for investors to have pulled back money! Who would not wanna do it? You buy the IPO in the 410-450 range and then it shoots upto 2k in a very short span (a normal public belief on Reliance). More to it; Ambani declaring that he wants the lay man to be a part of his investment; this calls for more liquidity in the market with people wanting to pull out their money from other stocks that they feel is not fetching them high profits that Reliance could do in a very short time.

Given the fact that there is one more BIG IPO coming through from BSNL and the SBI Rights issue following, it would be interesting to see how the markets would react to them. Maybe they are not so high priced or high valued as Reliance; but sure they are supposed to be good.

A seasoned long term investor would take this correction in his stride. This is not the time to sell of his equities in haste. This is the time to buy any and every stock if you have any spare money as this price. Some big stocks will fetch you pretty good returns in very short time.

Or, if you are one among them who says "I have invested enuf". Mind you; do not sell in haste. Keep it and you will earn your returns.

The volatility of the Market seen today was remarkable given the fact that the US markets are scheduled to open less and the amount of plunges the Australian, Asian and Europe markets saw today. Not a single market finished its daily business in Green. All were in RED.

If you have been waiting to get into the market; This is the time. Get in with some good shares and remain long for some awesome returns. Even if you are a short term investor; it will fetch you handsome returns.

But one thing was evident with today's market. Do not pack your bags in the 1st hour. Remain late and you will be happy. As I was telling my frnds:

Lesson to be learnt of today’s trading session!!

"Do not jump from the terrace of the BSE on Dallal Street as soon as u see a intra-day fall of BSE. Wait till the end of the day. U might have to just jump from the window in the 4th floor".