Last week, I talked about the duration of the correction. There are basically two factors affecting markets for this week. First is China's move to increase the reserve ratio to lower liquidity and secondly is the effect of the subprime crisis with highlights on Citibank and other European banks.
The first factor might be good in the long run to cool current fast rise of the index in both Shanghai and Hongkong although it might come as a shock to most speculators as the rate of fall is sharp. However, I do feel that somehow, China is going to push to allow their investors into Hongkong soon as previously, prices are much too high due to speculation of China's fund entry. Now, it should be priced at a relatively discounted rate of approximately 15%-20% which should be a good entry price for Chinese investors. Barring any unfortunate news, we might see an uprising trend either next week and in the last week of Nov which might push up global indexes.
For the 2nd factor, it's time to tally up losses so as to clear up the situation of how US and European banks current stand in terms of losses. Huge losses by Citibank is ringing alarm bells and this would prompt US/European banks to further anaylse the impact of the sub prime crisis and take measures to moderate these losses. However, we are also able to see stronger profits for retail stores and consumer electronics and this might be the silver lining. Nevertheless, it is still not worthwhile to put your bet in US markets although I suspect that with the strong growth of the global economy, US most likely would not go into a recession.
My advice for this week would be to start taking positions maybe next week when an uptrend starts forming.
