Double Dip?

Market is really bad today! Almost every indice in Asia are in RED. Shanghai led Asia's drop by dropping 2.42% to 3019.39pts. Our local bourse, KLSE was at the lowest 1278.1 before recovering at 1283.02 (-13.77, -1.06%). This is the worst day so far this year for KLSE. Many will be asking what's wrong with market? Is this the long overdue market correction? Or is it due to the short term reaction over tightening of lending in China and Uncle Sam's 3 years freeze on domestic spending?

Well, both reason can be the excuses for the market to correct itself. Since March 2009 till now, the market has been in bull run (though there're a few minor consolidation in between). This type of rally normally occurs after the recession (I believe to date, we're still in recession, in fact we've not recovered from the previous recessionsssss) and will last 6 to 9 months. During this 6 to 9 months, market is very sensitive to good news and has very little reaction over bad news. Every single news which are less bad or slightly better will be treated as a positive sign for the economy and market. For an example, banks in US. Many banks in US (Citigroup, BAC, etc..) were still suffering losses during that period, but the reporting of the losses were treated as good news for the market. How can this possibly be good news when the company is making billion dollar of losses? Is it because of the lower PE (if you follow the formula, share price/earning, earning is now more negative, thus PE is lower). The reason is simple, the losses that these companies made were less than expected. So the investors think that these companies are on the right track of recovery. But ask yourself, why would you invest in a company that made losses? Ain't that stupid? Back to the fundamental, the reason for you to invest in a company is to make money. Simple as that, but people tends to forget the fundamental during that 6 to 9 months period.

After that 9 months, people or should we call them investors are more intelligent and smarter. Now they know how to evaluate better and have a better judgement. Good news is good news and bad news is bad news. Bad news is no longer good news. Now this is how the market should react. So, the recent dip in market is normal, as there are too many negative elements for the past few weeks. What we can hope now is there are genuine good news coming in for next few months. The next few months will be crucial for the world ecocomic recovery, either a 'V' recovery or 'W' recovery. Be 'V' or be 'W', we want to see genuine and solid economy. Be it!