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What’s happening in the markets since last week?

By Musabbir Mazhar

US equities has seen a sell-off in the market last week and many are delving into the thought that the market has just started its long awaited downward spiral- I don’t think so. P/E multiples have grown surely but if you compare them to the time after the crises – when US financial system was melting down, Euro-crises was at its peak and China had bigger problems – whereas now we can say US economy is on a firm ground, Europe conditions have improved and although Chinese growth has slowed down, with the Chinese reform, we can be optimistic of a higher equity market- and being stuck with historical market multiples might make less sense… so I believe the markets will move higher with an earnings growing higher this year.
Chinese manufacturing data was weaker in December – falling to 49.6 from 50.5 in December  – a reading below 50 shows contraction- this caused the asian stock markets down as well as a sell off in the Emerging markets currency.

china pmi Jan 2014 1

There was a huge sell-off in emerging markets currencies. Argentine peso dropped 3.5% to about 7.14 per dollar mid last week and is now at 8 per dollar. The currency is trading much weaker in the black market at 12.15 pesos per dollar. Obviously Argentinians tried to get US dollars and sell the peso but the government limited the purchase of the greenback on a monthly basis to keep the currency stable. The currency depreciation is concerning since banks and other financial institutions remain at credit risk. Also, the central bank of the country has a deteriorating foreign exchange reserve which poses much risk to weaken the currency as the markets are in turmoil.

In the meantime, the Brazilian Real fell to 5-month lows as peso was devalued.

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