In 2009, we saw the possible collapse and eventual collapse of some of the biggest corporate names in the world - Lehman, Merrill Lynch, GM, AIG, Fannie Mae, Freddie Mac, etc.  With that behind us, I was of the view that there isnt another corporate failure/s big enough to frighten and spook markets in 2010.  In my Blog of 4 Jan 2010, I highlighted the risks of the withdrawal of fiscal stimulus and low interest rates and also the burgeoning debt of many economies especially in Europe (the three weakest were Greece, Spain and Italy) and lets not forget about the UK which is not part of the EU.  All the economies in the EU have exceeded that national debt to GDP limits which were conditions of the economic union. 

I am therefore not surprised by the problems in Greece, Portugal and Spain which had led to severe weakness in the Euro and strength in the US$.  Because the world economy is recovering and corporate earnings are rebounding, it was only a matter of time for the fiscal stimulus to be withdrawn.  As regards to the national debt problems, I am of the view that some rescue from the bigger members of the EU such as Germany and France or even the G7 will alleviate problems - its only a matter of time.

Markets were also hit by poorer than expected economic data in the US particularly in the labour market (see charts below).

I am not surprised by an expected rise in jobless claims or even the unemployment rate in the US because as the economy recovers, more individuals who were under-employed will come back into the job market and cause a rise in the unemployment rate.

The combined uncertainty of the Euro economies and the US jobless data has seen the Vix index rise again (see chart below) which usually signals continued market weakness on growing uncertainty.

How low can our own STI Index fall ?

Given that we didnt have a meaningful correction in the index in 2009, a normal correction will be about 15-20% from the peak.   Our STI Index has now convincingly broken through the 50 and 100 day moving average.  My guess is that the STI Index should bottom at about 2500 on low volume - so as shares of good companies start to weaken - we are presented with a buying opportunity.  The corporate reporting season has so far been encouraging and I believe it will allow the STI Index to support current levels on lower prospective valuations.  I dont know whether we will have a CNY Tiger rally but if this correction continues, I am of the view its a good opportunity to buy and or accumulate good companies.

Genting Singapore has secured its casino licence in Singapore causing a spike in the share price last Friday.  But was there any doubt that its licence would not be given after all we had MM Lee visiting the IR earlier - so it was just a matter of time for the licence to be given.  As to whether its a good investment, its too early to tell.  We need to see some normalisation of revenue after the novelty effect wears off.....so maybe by year 2 or 3 we can properly evaluate the stock.  Right now most forecasts are based on assumptions of visitors and average casion spend which cannot be verified.