It's a Dip not a Bear

Despite strong economic fundamentals and fairly optimistic market sentiments that have driven stock market prices in the past year and even stronger since the start of 2018, stock markets all around the world are witnessing an unexplained coordinated price descent in the past one week.

Asides the biggest bitcoin price crash in years, now 66% lower than its record high price of $19,500 in December, nothing out of the ordinary has occurred. Yes, stock prices are at the highest it's been in since pre-crisis era in U.S and the market is due for a price correction but then how do we explain market dips in relatively cheap emerging markets? Something is amiss!

As Central Bankers around the world have begun to discuss monetary tightening in a coordinated fashion as the quest for 2% inflation seems more achievable this year due to strong global economic and rising commodity prices, bond prices have dropped precipitously and the U.S 10 year Treasury bills risen above 2.5% and getting close to 3%.

The attractiveness of the rising bond yields in developed markets is catching the attention of institutional investors and is causing an asset rotation in financial markets from stocks to bonds to reduce the equity risk on their portfolio as global stock markets ascend to record highs. The coordinated global market fall is only an unintended consequence of increased global market correlation.

The market rout will soon be over and the dip will be short lived. By buying the dip today, investors can position themselves for alpha returns during coming rally as we enter the earnings call season with high optimism. Stocks might have taken a hit this week but everything still looks perfect for an awesome year for equity investors.

As for me, I'm piling all my money on value stocks in Nigeria. The dip will soon be over and I promise the price rally will be longer.

Emeka Ucheaga
Managing Partner,
Emeka Ucheaga Advisory

Comments

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