7:30pm Thursday June 4, 2009
The Philippine stock index tanked 14 points in the first half hour of trade, but as the session wore on, prices started to turn up again ending the day with the index up 23 points (+0.93%). Hong Kong behaved similarly except it ended down 73.70 points (-0.40%), but that was being down almost 500 points in mid session. What this tells me is that the bulls are very much in control in these markets.
As early as January this year when stock prices were practically on a free fall, Morgan Stanley's Global Monetary Analyst series of articles had said that a new global liquidity cycle was in its infancy and will likely benefit asset prices in emerging markets. This idea had always been in the back of my mind when I read it. When I observed earlier that this was a liquidity driven rally, I did not realize how powerful a driver liquidity could be. In the nineties, the liquidity cycle drove bond prices to stratospheric heights until the dot.com burst its bubble. That cattle drive lasted around 8 years. This time around, it is more likely that the smaller markets are the ones who will reap the early benefits of this liquidity build up. This could last longer than we think simply because liquidity created by the OECD countries is unprecedented in history.
Strategically, one should not be naked in any asset positions, at least not in the early stages of this rally. If we observe today's price action, how much more confirmation can we get. When a slight downturn in prices invites such a good size buying, it only tells me that those who are buying at these prices are not looking at a three month view but probably 12 to 18 months down the road. Do I agree with these buyers? Again, I say, I don't argue with money. When people are willing to take risks for rewards to be reaped long into the future, there is just no way to refute that.
Do still like the market? Absolutely, and I would not be caught with my pants down, figuratively.