Speculative Bubble In the Making 0 652

By : Kenneth De Zilwa

Speculative-Bubble-In-the-Making-Lets-Examine-the-Details
                                              Source: Thomsonreuters & Authors Calculation

The stock market rally can be put into context by analyzing its market capitalizations as percentage and Gross Fixed Capital Formations as a percentage  of GDP

The long term Market Capitalization as percentage indicates that that the Global markets as overbought and that a correction is in order.

The previous three occasion were 1997-1999 the Japan Asset bubble in and US banking crisis in trigged the fall. In 2000-2001 it was the US dotcom bubble and finally in 2007-2008 the US mortgage and derivative bubble.

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Herd Behavior – Driven by Market Share 0 410

By : Kenneth De Zilwa

  • Global stock markets are strongly correlated to each other and this makes any financial  contagion rather predictable and broad based.Herd Behavior - 01
  • From Asian Markets to the European Markets investors find their collective behavior of chasing earnings leading to a herd mind set. This mind set can be both good and bad, in fact more exemplified when the bad unfolds as many tend to sell out pushing a rapid fall while short selling adds to the avalanche effect
  • Over the past year the stock markets have declined
    • S&P –US by 10.14%
    • FTSE-UK by  0%
    • Nikkie-Japan- by  78%
    • DAX-Germany by  0%
    • CSE –Sri Lanka by 6.07%
  • Therefore, 2019 we feel could be a year where markets correct lower, as  corporate earnings and higher debt on many corporate balance sheets  makes it a challenging time for markets.

Herd Behavior - 02

  • Our advice is to stay in cash and watch for value stocks , as the market will provide the opportunity  given the  business cycle

 

USD / LKR Outlook 0 1010

By : Kenneth De Zilwa

Chart-4-USD/LKR Monthly price movement

USD & LKR

Source: CBSL

The rupee has weakened by 17.5pct on a year to date basis, we feel that most of the correction could be nearing an end as the 20pct targeted weakness could soon be complete.  The weakness also seem to be now in line with a REER of 100 and thus could seen some consolidation once the 20pct target is reached i.e. 186.00.