IG Markets - Afternoon thoughts March 11th 2011

Across Asia, regional markets are all lower in Friday afternoon trade as concerns over the pace of growth in China, European debt worries and geopolitical issues continue to weigh on investor sentiment. The Korean Kospi is the biggest decliner, down 1.4% while the Nikkei 225 and Hang Seng are weaker by 1.1% and 0.8% respectively. The Shanghai Composite is the relative outperformer, only down 0.2%.

In Australia, the ASX 200 is currently 1.1% weaker at 4648, but off its session lows of 4630. The market is currently down 4.5% for the week with investors finally succumbing to concerns that the current Middle-East unrest could derail the global economic recovery. A re-emergence of European debt concerns and a surprising Chinese trade deficit have compounded this week’s heightened fears. Losses for the day are broad based with cyclical names being particularly hard hit.

This pullback started with the tensions in the Middle East and surging oil prices; now a few other concerns have re-emerged and are combining to derail confidence and sentiment. We’re not overly concerned about fears of China slowing but see the Middle East and European sovereign debt issues as more pressing concerns for the market.

The Middle East is shrouded in uncertainty; nobody knows how and when things may be resolved, especially if they continue to spread to other gulf regions. As for Europe, this is headline news that keeps on popping up every three to four months. So far, we’ve largely seen ‘band aid’ solutions, with nobody really sure on how to fix the situation properly. How do you manage a region that has sixteen separate governments managing their own fiscal matters and one central bank controlling monetary policy? Maybe it’s the model that is broken?

With the Dow and S&P 500 both breaking down below key psychological support levels, it will be interesting to see how quickly they can reclaim the crucial 12,000 and 1300 point levels. Will bargain hunting emerge or will profit taking and short selling become more aggressive?

ENDS

© Scoop Media