Monday, 12 June 2017

Tech sell-off exposes fragile manufacturing bull

It was just last Sunday when I blogged about the fact that Singapore's SGX often exhibits strong correlation with United States' markets (here). Last Friday's tech sell off on US's markets have demonstrated the point right smack on cue.

For the uninitiated, while Nasdaq and NYSE have continued to perform admirably, there was a widespread fall in tech stock prices. Reasons attributed to the loss includes Goldman's unfavorable report, Apple's new Iphone using a slower processor and profit taking, none of which were compelling fundamental explanations.

The losses of some tech stocks are illustrated below.

Source: Google Finance, compiled on 12th June 2016

Singapore's manufacturing stocks then took a beating when the market opened for the first time after Friday's tech rout. The losses of SGX manufacturing stocks are illustrated below:

Source: Google Finance, compiled on 12th June 2016
*counters held by Author, still in paper profit positions

In my opinion, while the losses were expected, the huge single-day correction points to 2 main aggravating factors:
1) Technical traders hitting stop losses
2) Leveraged traders hitting margin call

"Only when the tide goes out do you discover who's been swimming naked."
- Warren Buffett

I think the losses will extend further for at least a couple more days as those swimming naked look to cover positions (pun intended). As a fundamental investor, I am excited to have the opportunity to pick up more of these stocks on the cheap. On the other hand, I have to balance this with my desire to increase my cash holdings.

These are the times when I glance with envy towards other cash rich value investors. Perhaps I was moving too slow with my Portfolio pivoting strategy? Time will tell! In any case, the fragile manufacturing bull has been exposed.

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  1. Basically a yawn for me. I'll be more interested in a 30% or more correction across stock markets.

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