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. :)

US Debt Crisis & Singapore Stock Market

As of 11:48pm 26 July 2011, US Dow Jones industrial average is down by about 0.5% or 60+ points. US market is still trying to digest the uncertainties surrounding the US debt crisis. Weirdest thing is that Asian markets closed generally positive today. The markets have started to build in possibilities of US debt default and frankly, many of the Asian companies have stronger fundamentals that should be able to tide these companies against tsunami effect of a US debt default.

Sure, if there is indeed a default, many companies will be hit badly (it is indeed a financial tsunami) but the growth story is already in Asia, not US. Past the effect of the financial tsunami, business will still go on in Asia. Of course, many are confident that the Washington will arrive at a solution, and 2 August is not the final deadline for the debt default. Thus Washington does have more than a week to sort out the issue.

Focusing on Singapore market, the counters have performed fairly well this week. India's hiking of interest rate by 50 basis points, and the debt crisis seemed not to have any major effect on the Straits Times Index. It closed at 3,186.57, near the closing of 2010. Jardine ($49.91), UOB ($20.50), SembMarine ($5.44) and SingTel ($3.33) have all gained. 

So would the Singapore market performs tomorrow? My guess is that should US DJIA sustain above 12,500 tonight, things should turn out normal (if quiet) on 27 July 2011.