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Stock market review for year 2011 and stock market forecast for 2012.


World economies were constantly trying to rebuild itself from the financial crisis this year but bad news like – Euro-zone debt crisis, fundamental fiscal problems from US, Middle East political tensions and disasters from Japan e.t.c have hampered much of its progress that it was trying to recover. Though things have not reflected in every stock index equally.

Stock Index
30th Dec, 2011
12/31/2010-12/30/2011 (%)
12/31/2009-12/31/2010 (%)




DOW
12217.56
5.53
10.34%
FTSE
5572.28
-5.54
8.99%
CAC
3159.81
-16.93
-3.35%
DAX
5848.78
-15.41
15.71%
NIKKEI
8455.35
-17.33
-3.59%
HANG SENG
18434.39
-19.97
5.38%
AUS
4071.1
-14.2
-2.45%
SHANGHAI
2199.42
-21.67
-13.98%
SENSEX
15454.92
-24.64
17.44%
BOVESPA
56754.08
-18.11
1.04%
RUSSIA
5733.6
-14.98
20.96%
INDONESIA
3808.77
2.86
46.13%
KOSPI
1825.74
-10.98
21.93%
STRAITS
2646.35
-17.04
10.11%
THAI
1025.32
-0.65
40.60%
ARGENTINA
2462.63
-30.09
51.85%

As we can see that during last two years DOW has benefited much, QE-2 money worked quite well for DOW. On the other hand in spite of better growth figures indexes like Shanghai Composite and SENSEX are dropping more than 20%, inflation and slowing growth cannot be justified answers behind this drop. I don’t know about all but couple of stock markets are dropping on panic by domestic investors rather than any huge selling by big foreign institutes.



Stock market forecast for coming year 2012.

Without some improved reports from US, I am not getting any better news for stock market rally in 2012. Different countries are taking austerity measures, as I said in past, I seriously think it will create more problems for economic recovery.
Banking sector which is a major part of the stock market is still in trouble, I am talking about banks of both US and Europe. As I said in my weekly postings that their exposure in CDs & CLNs can be a big matter in future (obviously if this episode still goes on). For Euro zone banks ECB provided cheaper loans (better to say QE-1 for Europe) and US Fed, with different central banks reduced their emergency dollar funding cost, in spite of that they are still nervous about lending each other. ECB practically announced a QE-1 for Europe, in spite of that stock indexes have not shown any big reaction, that is little disturbing. And threats of rating agencies are still there for Europe.

Some unconfirmed report says that debt-to-GDP ratio of US is above 100% (excluding unfunded liabilities), some economist believe that this is the level that is consider to be point of no return. No one wants to see the name of USA after Greece and Italy.

We know that Euro-area is in trouble and we also know that US is trying hard to come out of it but probably we are underestimating its effect in other parts of the world. Japan is showing negative reports, as well as Emerging countries like China and India. I think one of the biggest troubles for Emerging economies in 2012 can be Inflation (or better to say QE-3 related inflation), actually world is sitting on an Inflation Bomb. I don’t think that Emerging markets can perform better in 2012, considering their performance in past QEs.

Those are some negative items that can help stock indexes to drop more (excluding political events like problems in Gulf & Middle East countries). So what is the future of stock markets in year 2012?  There is no strait answer, condition is not improving much or better to say negative. But if someone wants to see a little light in the darkness then those are ––

1)    USA is going to face election in year 2012, it is true that Obama never wants to face election in that time when economy is going down, people are loosing their investments, banks are occupying mortgage properties, unemployment number are increasing rapidly. So there must be some window dressing, therefore we may expect better weather.  How?  That I don’t know yet!

2)     There is a chance of QE-3 in US and if it has to come, then it will come much before the election. Like past, that QE-3 is expected to be good for US stock indexes.

3)    Talking about QE, I think not only in USA, we may also see some kind of big QE -2 (if cheaper loan is considered as QE-1) for Euro zone too. So like US we may also see its effect on share price indirectly.

4)    Separation of problematic countries from Euro-zone. Though it may take some time to affect market.


I don’t know whether we are going to see Euro zone problems come to end in mid-2012, but it is sure that US can achieve maximum 3% growth in year 2012. On the other hand China and India are facing less growth figures. I think that growth figures of those Emerging markets will also increase if Euro zone and USA come into track.  Therefore stock markets are also expected to perform in tandem. Though that doesn’t guarantee a bumper return in stock markets. But in that case there is a chance that these stock indexes will make a base here for future rise.
One thing I feel during these days that every country should think about building a strong stock market in coming days, what I mean stock market that moves with domestic players rather than depend on foreign institutes. So that if someone feel pain in Greece, a person from South Korea doesn’t have to pay the medical bill.
In my past posts I told many times that this QE is not good for Emerging markets, which may be good for US!  So as a stock trader I will not support QE…. , rather I want to see stock indexes crashes so that it can reflects true picture of economies and true value of a particular sector. I think it is better than …………

So the end story is, unless I see major selling by big foreign institutes in coming days I don’t believe about the worst thing. On the other hand if someone waits for buying opportunities after reading the news headlines that Euro zone problems have solved, I think that will be tooooooooooo late.


NOTE– 1: I will give stock index forecast in my weekly reviews.
NOTE–2 : :  Please see the disclaimer of this blog . 

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