Motivational Tuesdays – Stay Positive #27

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WWN#41 – Aussie Stock Market Plunges: Should You Buy, Hold or Sell?

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Source:  Yahoo Finance

What’s Been Happening?

At the beginning of February, the benchmark 10-year bond yield rose to a four-year high on the back of positive payroll data being released in America. With wages rising and unemployment falling, the data acted as a signal to many that the U.S. was inevitably about to start increasing interest rates.

A week prior to the news, the Dow Jones Industrial Average had its highest closing record of 26,616.71 set on January 26. This meant investors were already quite cautious of a pull-back and inevitably the release of positive economic data triggered an immediate sell-off in the stock markets there and around the world.

After falling slightly on Monday, the Australian stock market had one of their worst trading sessions with $56 billion in value wiped off the stock market on Tuesday. The S&P/ASX 200 dropped 3.2% which makes it the worst one day fall since September 2015. There was some reprieve on the following day as bargain hunters came in and stabilised the market which recovered about 1.2%.

What Now?

On Thursday night, the sell-off on Wall Street deepened and the Dow Jones Industrial Average lost 4.2%, taking the losses since last Friday past 10 percent, the definition of a correction. That led to renewed selling on Friday for Australian shares, albeit it was only a 0.9 percent drop to finish the session at 5838 points. Over the week, the cumulative losses add up to 4.6% and the total value of the Australia sharemarket has dropped by more than 70 billion.

What’s Next?

Is it time to buy? Focus on the Fundamentals

Head of equities research at Morningstar, Peter Warnes, has commented that: “It’s way too early to go bargain hunting” as there will be reliefs but more downside is likely to develop over the next few weeks. Investors are likely to wary as volatility remains high.

Having said that, stock market pull-backs can be an advantageous time for investors to pick up stock more cheaply. During periods of volatility, individual stocks are more likely to outperform the market especially as the reporting season has begun in Australia and companies have started to report their half yearly earnings.

Is it time to hold?

Currently, we are in correction territory and corrections are generally temporary in nature. Although the U.S. political situation is a mess, the U.S. economy is actually doing fine (higher wage growth and lower unemployment) and therefore there is no definitive cause to be alarmed. Unless you have reason to believe that a stock will never reach that price again, it would be silly to sell now and lock in losses.

Is it time to sell?

Now is not the time to panic sell. Compared to overseas markets, the losses sustained in the Australian stockmarket are mild. It’s still $44 billion ahead of where it was this time last year and $220 billion ahead of where it was three years ago. Furthermore, even if there are a couple of rate rises, the interest rate is still relatively low in historical terms. In Australia, reporting season has only just begun and there are expectations that corporate earnings should rise by about 7% or so which should support stock prices that have not risen as sharply as in the U.S.

In Warren Buffet’s memorable words: “Be fearful when others are greedy and greedy when others are fearful.”

References:
http://www.smh.com.au/business/markets/nowhere-to-hide-as-sharemarket-shakeout-rolls-on-20180208-h0vrsb.html
http://www.abc.net.au/news/2018-02-10/are-australians-exposed-to-stock-market-falls/9417210
http://www.smh.com.au/business/markets/need2know/beware-sharemarket-panic-selling-20180206-p4yzh8.html

WWN#40 – South Korea Qualifies Ban on BitCoin!

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What’s Been Happening?

In late 2017, the Korean government had been making it very clear that they wanted to bring the speculative activity of cryptocurrency trading under control through its warnings that it would be conducting on-site investigations of exchanges and looking at a “cryptocurrency tax”.

On Thursday, South Korea’s justice minister Park Sang-Ki was reported to have said that the justice ministry is “basically preparing a bill to ban cryptocurrency trading through exchanges”. The announcement sent bitcoin plummeting by as much as 21 percent and nearly all other cryptocurrencies saw significant losses. South Korea is a major hub for virtual currency transactions, where they account for more than 20% of all bitcoin trading and more than one third of South Korean adults hold some form of cryptocurrency.

Just a few days earlier, a popular cryptocurrency price tracker CoinMarketCap removed prices from South Korean exchanges because the coins were trading at a premium of about 30 percent compared to other countries. This likely led to more confusion than necessary and triggered a broad selloff among investors.

What Now?

The statement made by Park Sang-Ki was later moderated by the presidential office on the following day which said a ban was under review but no policy changes had been made as it was only one proposal under consideration. A petition on the website of the presidential Blue House has drawn more than 120,000 signatures opposing the ban.

The Ministry of Justice apparently made the independent announcement without the consent of the Ministry of Finance and Strategy and other government agencies involved in the South Korean cryptocurrency regulation task force.

What’s Next?

In light of the government’s announcement that cryptocurrency will not be banned in the near future, it is likely that the South Korean government will move towards regulating and fostering the local cryptocurrency market.

A spokesperson last year said that regulatory roadmaps set by other countries such as Japan and U.S. are likely to be followed so it is unlikely that a cryptocurrency trading ban will be imposed in the long-term as well. With more and more investors seemingly jumping in to cryptocurrency craze in Korea from college students to housewives, there needs to be a push for stronger regulatory requirements especially from the exchanges that foster cryptocurrency trading (e.g. Coinone and Bithumb in Korea).

References:
https://www.reuters.com/article/us-southkorea-bitcoin/uproar-over-crackdown-on-cryptocurrencies-divides-south-korea-idUSKBN1F10YG
http://www.news.com.au/finance/money/investing/bitcoin-plummets-as-south-korea-announces-plans-to-ban-all-cryptocurrency-trading/news-story/27c5845fa9315d6b07d51adca46fa29d
https://www.bloomberg.com/news/articles/2018-01-11/cryptocurrencies-retreat-amid-south-korea-clampdown-concerns?cmpid=BBD011118_MKT&utm_medium=email&utm_source=newsletter&utm_term=180111&utm_campaign=markets
https://thenewdaily.com.au/money/2018/01/11/south-korea-bans-bitcoin-trading/?utm_source=Responsys&utm_medium=email&utm_campaign=20180111_PM_Update