To answer that million dollar question, please let us examine the whole situation. First, what actually caused the market to slump? Second, the correction is short or long-term? In the end, it depends on how gut are you as an investor in this sentiment driven market.
What actually caused the market to slump?
Panic selling is my answer. Simple and straight to the point. Investors are so scared that they can't figure out what is going to happen after S&P downgraded US long-time AAA rating. This was the first time US was being downgraded. No previous record for investors to forecasts, so dump first la. Herd mentality is playing a very crucial role now (again).
Short or Long-term correction?
As mentioned, panic selling also means short-term correction. People are throwing their assets at a discounted price for the sake of getting their sleepless night away. After awhile, then only they realized that the actual situation is not as bad as they think. Then, investors will come back to the "playground".
The panicky Good news?
While bear market set the stage last week, US did reported a few surprising announcements as below:
- unemployment rate fell slightly in July to 9.1% as compare to 9.2% in previous month
- payroll salary is increasing again in July (boosting consumer spending going forward)
- 2nd quarter corporate earnings are better than many analysts forecast
- After all, only S&P cut US rating while Moody's and Fitch still maintain the AAA rating
- Commodities price came down so much which would put less pressure on inflation
Despite the good news, seems like the market was conquered by negative vibes successfully distributed by S&P. Finance Malaysia believes the market will sooner or later realized that the world economy is actually still recovering, albeit slowly. Investors will come back again in medium term owing to a few catalysts to rejuvenate investors' sentiment. Who knows QE3 is in the making?