Yesterday FinanceTwitter wrote about how you, regardless of your status as new-bird or old-bird, should follow the trail of Wall-Street if you want to be ahead of the rest of the crowds. For decades, whether you realize it or not, the rest of the regional stock markets have recognize and follow this pulse-trail, one way or another simply because U.S. is the largest economy country in the world.

One distinct feature that differ Wall Street and Malaysian stocks market is the volatility. Stocks traded on NYSE or Nasdaq are extremely volatile with a couple of points or sometimes more than ten points traded intraday. On the other hand, Malaysian stocks rarely traded more than 1 (one) point intraday.

Sub-prime Mortgage – Malaysia affected?

Dow Jones closed higher by 286 points yesterday and as expected Kuala Lumpur Stocks Exchange is on the positive territory this morning. But what the heck does this sub-prime mortgage virus which is infecting U.S. now has anything to do with Malaysia equity market? Unless Malaysia has some sort of direct exposure in the low-end housing loans in U.S. the local bourse shouldn’t behave in such a panicky way, should it? Furthermore the sub-prime mortgage issue is not something new – the U.S. housing bubble already burst since last year.

Data reported by BusinessTimes shows that Malaysia top lender Malayan Banking Berhad (KLSE: MAYBANK, stock-code 1155) has indirect exposure to low-quality housing loans of US$60 million only as compare to Korea’s Woori FHC’s US$463 million (RM1.6 billion) exposure, Taiwan’s Shinkong (US$1 billion or RM3.47 billion) and Singapore’s DBS (US$850 million or RM2.9 billion).

The fact is the foreign funds which poured the money into local bourse are still subject to the risk of sub-prime mortgage trouble back home. So when the panic emerged in U.S. these funds will just hit their button to sell their portfolio in other region including Malaysia. That brings us to the billion-dollar question – will the sub-prime mortgage be the root of the U.S. recession? Could the issue be blown-out of proportion by speculators or hedge fund-managers?

The key persons in volatile market

You can’t deny the fact that speculators and hedge fund-managers love market volatility in order to make money. They simply hate a flat market as there’s not much money to be made. You have to remember in U.S., the land of opportunities, you can make money both ways – either market is up or down (long and short). Stocks do not simply fluctuate for no apparent reason and if it fluctuate, chances are high it was due to the reasons presented by the fund managers or speculators in the name of “research” or “analysis report”. If other speculators believe the reasons published and react the way the manipulators want them to, then the stocks go up or down accordingly. You can bet other people who do not know much about stock, let alone the game of it, will just follow in huge waves – just like the issue of sub-prime mortgage.

U.S. entering recession period?

However in U.S. housing is only about 5 percent of the economy and if it falls by 15 percent, that would represent a fall-off of about 0.75 percent. So this fact shows there’s no recession. In fact the economy is suffering from a labor shortage, not a surplus of unemployment. The Fed is actually worried about excess demand, not slack demand. You can see the earning announcements from other sectors are on the uptrend – they beat earnings estimate. Within U.S. herself, why should technology stocks or Pfizer, for example, punished for the weak housing sector? Because the speculators sell everything they can when nervousness sets in – and for no other reason.

Same old game with Fear

In summary, it’s all about the speculators and fund managers trying to panic us so their sell programs will make money (boy, do I sound like Mahathir blaming George Soros in the 1997 Asia Crisis?). And they’ll make money as long as they can spread their panic. They will continue to do so because history has shown that such tactic works all the time because humans are still vulnerable to the emotion of fear and greeds. When they can’t do that any longer (spreading the fear), they’ll work the other side and started to call “Buy” – and make up reasons for that, too.

When was the last time the fund managers told you to enter the stocks market because they’re going to enter soon? In terms of real recession, I would actually worry more on China’s collapse than U.S.’s plunge, given the choice of both giants.

Other Articles That May Interest You …

• New-birds and old-birds – Stocks Market had Change
• China’s Tightening Monetary Policy to continue
• Black Monday for China Stocks – A Real Correction?

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August 7th, 2007 by financetwitter

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