US market, AA+, and QE3 - what it means for Singapore market

Standard & Poor has downgraded the US credit rating from AAA to AA+, while Fitch & Moody maintained a poor outlook for the US. I guess the downgrade is to be expected after the pro-long battle between the Democrats and Republicans over the US debt ceiling debates. It is strange that the US's economy is held ransom by the bi-partisan divide, i.e. internal politics literally killing the country. It is worrying that such a stalemate scenario is likely to happen again and again since the debt deal involved the setting up of a bi-partisan committee to decide on deficit cutting measures.

One clear effect of the debt deal is that there will be a form of Quantitative Easing coming up, i.e. QE3. This was an effect observed by Li Daokui, an adviser to the People's Bank of China. So once again US government will unleash large amount of money, and that means stock markets, commodities and prices around the world will go through another round of the roller-coaster ride.

For a start, US dollar will crumple if QE3 comes about. No brainer there. Arbitrage opportunities will be abundant for the fore market, since different currencies will react to different degree to the weakening US dollar. Sing dollar should not rise as much compared to some currencies, since Sing dollar is pegged to a basket of currencies. This also means inflation will be a bigger headache in the months to come for the Singapore consumers.

After the forex effect, next will come the general uplifing of the stock market. It was a blood bath for the past few days. In the coming weeks, there will be bargain hunting, as funds with large inflow of liquidity will hunt for safe / growing stocks in Asian markets. Singapore stock market will feel the positive effect, since funds find it easier to trade the Singapore stock market. The effect will not be over-powering, but a general rising tide should lift many ships.

So in the coming weeks, look out for valued stocks / blue chips / reliable S-Chips in the Singapore stock market. At least earn some in order to offset the inflation that will come. :)