Global Investors on the Lookout
I have read a lot of news regarding the US stock market today. S&P 500 dropped 5% from it's previous high last month. The S&P 500 Index is composed of the 500 large capital companies in the US that are being traded in the stock market. US stock market is going down. The reason why the US stock market is going down is because the US government generated a meager 54,000 jobs only. These 54,000 jobs generated means that the recovery in the US economy is there but it is very weak.
Quantitative Easing 2 ends in June 30, 2011
What is Quantitative Easing (QE)in the first place? QE takes place when the central bank of the country print money in order to buy government bonds or other financial assets. It means that there is an additional supply of money in the market that will buy bonds and stocks because of the printing of money. Since the buyers of the bonds and stocks are now more than the supply the tendency for the stock market is to go higher because the government is now part of the buyer of the stocks. In the law of supply and demand, when there are many buyers and the supply is very few, the price go up. That is what happened in the US stock market when the QE is implemented, the US stock market went up.
Now that QE is coming to an end, the investors are now cautious on the effect of QE in the stock market. Will the US government sell the bonds and stocks it purchased while the QE is in place? If that is the case, the seller of the stocks will outweigh the buyers and in the law of supply and demand, when there are many sellers but few customers or buyers, the tendency of the stock market will go down. That is why most of the investors are now cautious in the US stock market.
When the US stock market is down, the Philippine stock market normally goes down also. One of the reasons is that the buyers in Philippine stock market consists of Filipino and foreign investors. These foreign investors or global investors are cautious in the stock market and when they pull out their investment in US stock market, they also pull out their investment in Philippine stock market. Also, we are a trading partner of US of A. We export and import goods to US. When their economy is bleak, we are somehow affected by their woes.
The European Debt Crisis
Europe member countries like Greece, Spain, Ireland and Portugal has serious debt problems. Greece to be particular was bailed out again by the European Union. Greece has 150% debt of it's GDP. Greece debt is so big it kicked off a $72.5 billion privatization program to pay off it's $485 billion dollar debt. Portugal's socialist government collapsed last March in a row over austerity. European Union and IMF bailed them out to the tune of 78 billion euros. Ireland's debt problems is also big such that 50% of their taxes currently being raised are being used to pay it's interest alone.
The ramifications of this debt crisis in the stock market is that there will be less money to produce economic activity because the money raised through taxes by these governments will be used to pay debts instead of building roads, hospitals, schools, etc. As we know, in building roads and other infrastructures we need manpower or labor. These hired laborers will in turn receive salary. When these laborers receive their salary, they can save a portion of their salary in the bank or buy things they needed like Jollibee burgers. When these laborers buy burgers, they create demand for burgers so Jollibee will increase the supply of burgers. More sales for Jollibee means more tax for the government aside from the tax it will get from the laborers and companies building hospitals, etc.
You see, when the net income of Jollibee goes up, more investors will buy it's shares in the stock market, thus driving the stock market up. The effect of this debt crisis is being felt in the stock market also. On another note, as a trading partner, Philippines is not that much exposed to the European debt crisis because the volume of trading is less compared to other countries. In fact, Japan is our biggest trading partner and since Japan is busy recovering from its nuclear and tsunami disaster, it will require a lot of resources to build it again. We might benefit in this recovery efforts.
Protests in Libya and Yemen
Libya is the 12th largest exporter of oil in the world. Obviously, if the protests will escalate and cause political instability, the supply of oil may be affected. If the supply of oil is affected, the oil price may go up. As seen in the Philippines, when the oil price goes up, the commodity prices goes up also. If the commodity prices goes up, the consuming public may hold their money in spending. When the public hold their money, sales of the companies may go down and that will affect their net income. If the net income of a public listed company goes down, more likely the investors will not invest in that company and will push the stock market down.
I have read a lot of news regarding the US stock market today. S&P 500 dropped 5% from it's previous high last month. The S&P 500 Index is composed of the 500 large capital companies in the US that are being traded in the stock market. US stock market is going down. The reason why the US stock market is going down is because the US government generated a meager 54,000 jobs only. These 54,000 jobs generated means that the recovery in the US economy is there but it is very weak. Quantitative Easing 2 ends in June 30, 2011
What is Quantitative Easing (QE)in the first place? QE takes place when the central bank of the country print money in order to buy government bonds or other financial assets. It means that there is an additional supply of money in the market that will buy bonds and stocks because of the printing of money. Since the buyers of the bonds and stocks are now more than the supply the tendency for the stock market is to go higher because the government is now part of the buyer of the stocks. In the law of supply and demand, when there are many buyers and the supply is very few, the price go up. That is what happened in the US stock market when the QE is implemented, the US stock market went up.
Now that QE is coming to an end, the investors are now cautious on the effect of QE in the stock market. Will the US government sell the bonds and stocks it purchased while the QE is in place? If that is the case, the seller of the stocks will outweigh the buyers and in the law of supply and demand, when there are many sellers but few customers or buyers, the tendency of the stock market will go down. That is why most of the investors are now cautious in the US stock market.The European Debt Crisis
Europe member countries like Greece, Spain, Ireland and Portugal has serious debt problems. The ramifications of this debt crisis in the stock market is that there will be less money to produce economic activity because the money raised through taxes by these governments will be used to pay debts instead of building roads, hospitals, schools, etc. As we know, in building roads and other infrastructures we need manpower or labor. These hired laborers will in turn receive salary. When these laborers receive their salary, they can save a portion of their salary in the bank or buy things they needed like Jollibee burgers. When these laborers buy burgers, they create demand for burgers so Jollibee will increase the supply of burgers. More sales for Jollibee means more tax for the government aside from the tax it will get from the laborers and companies building hospitals, etc.
You see, when the net income of Jollibee goes up, more investors will buy it's shares in the stock market, thus driving the stock market up. The effect of this debt crisis is being felt in the stock market also. On another note, as a trading partner, Philippines is not that much exposed to the European debt crisis because the volume of trading is less compared to other countries. In fact, Japan is our biggest trading partner and since Japan is busy recovering from its nuclear and tsunami disaster, it will require a lot of resources to build it again. We might benefit in this recovery efforts.
Protests in Libya and Yemen
Libya is the 12th largest exporter of oil in the world. Obviously, if the protests will escalate and cause political instability, the supply of oil may be affected. If the supply of oil is affected, the oil price may go up. As seen in the Philippines, when the oil price goes up, the commodity prices goes up also. If the commodity prices goes up, the consuming public may hold their money in spending. When the public hold their money, sales of the companies may go down and that will affect their net income. If the net income of a public listed company goes down, more likely the investors will not invest in that company and will push the stock market down.
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