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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » At what level of ASI the bubble started?

At what level of ASI the bubble started?

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Market Sucker


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
our market is too illiquid to have a bubble,and also still big guys hold the key operations in share trading,so we individual selling millions cant form a bubble...


Market Sucker


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Chinwi wrote:This is my personal view, looking at the problem in a different way. Do not change your own ideas and actions.

There was not a bubble. !

PER was reaching 20 and 25.
Still I believe there was not a bubble. !

BTW, I do not think PER of 20-25 is bad for a good company in a new country anticipating and showing a rapid progress ( over 8 %) in coming years.

All will depend on the progress of the country as a whole. The current turmoil is artificial. ! Exclamation


this is abt Bangladesh market..

*Price Earnings in market
Towards the close of 2010, the average P/E in Bangladesh market for the stock index moved up to 29.71 times the expected anticipated earnings of index stocks, which was much higher than those noticed in the neighboring Asian pacific markets from emerging economies like India at 23.89, Hong Kong at 16, Sri Lanka at 24.69 and Singapore at 18 times. This increase reflects the bullish outlook among the investors. However, it is expected that PE ratio may be reduced to sustainable level considering earnings growth of the listed companies and steady growth of the overall economy.

*Shares speculation has evidently become popular among the public, and apparently selling from one big institutional investors has accelerated dumping that began in earnest in December



see what happened to it

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Antonym wrote:
@Academic wrote:
Opinions are thoughts. No thought is write or wrong. What is important here is expressing it logically. + from me too.

By the way Chinwi, it is evident that foreigners are still selling since mid 2010. Don't you think current downturn is partly due to foreign selling pressure? If they are selling even before market started declining (before September) , they should have a sound reason to do so. What do you think?
If valuations were the only criterion, foreigners would actually be buying now. In my opinion, foreigners have been selling ever since they realized the nature of our market (rampant insider trading, manipulation, etc.).

Some foreign funds are like the breeze; they blow in when they sense an opportunity - and blow out when they've made their money.

There is a point in your argument as some counters are undervalued. However, insider dealing and other manipulations are common for many emerging/frontier markets, thus to me it is not acceptable that they didn't know the nature of this market before coming. Further to support this argument, this is neither the only time we opened CSE to foreigner nor the largest foreign fund withdrawal we had (in September 2001 foreign holdings drop to 8 billion, for this we had valuation reasons, ie, negative outlook of the country).

Therefore "why foreigners are withdrawing?" is reasonably unanswered question in this forum, IMHO.

So I expect more and more deliberations here on this. Realizing this would shade a light on real reasons behind current downturn.



Last edited by Academic on Wed Jul 27, 2011 7:42 pm; edited 2 times in total (Reason for editing : trillion as billion)

mono


Vice President - Equity Analytics
Vice President - Equity Analytics
@wis wrote:What chinwi describes IS exactly a bubble. May be the thing is when you're inside the bubble you don't see you're inside a bubble. You're completely away from reality. That is what a bubble is. Non existent money changing hands always going up and up.

People think something extraordinary will happen after the war. People who have invested in the market are very optimistic. People forget the past. In 2007 when the war was still there, Sri Lankan growth rate was around 7 1/2.

Wait a minute that's almost the same as the current after the war. With all these talks, with all these developments. How did that happen? Because although the country had war on one side, this country went on like any other, just like Israel or whatever country that had wars.

Other thing is I have read in many places that the CSE does not represent the Sri Lankan economy. When the economy grows the CSE company performance would go down because it's not these 200+ companies in the race. New hotel projects are coming up all the time. How will that affect the current star hotels listed in the CSE. Will they be overbooked? Check how many agrochemical companies are there in Sri Lanka? Check how many shipping contruction companies are there in Sri Lanka? See how many food companies doing really great but no listed in the CSE? Check how many motor companies are there not listed in CSE? How many manufacturing companies are there? Only 30? For every company that is listed in the CSE there are dozens of competitors not listed. And many are coming up through direct foreign investment. They are competition to the CSE listed companies.

I think in reality our country is at a bit above the 2007 environment.

WIs you're missing the point about the post war situation. the problem was never the GDP numbers. The problem was uncertainty, it was this uncertainty of stuff blowing up on your face, literally speaking, that depressed the market and made it operate at PE's of 3-4.

SEC seems to be very much interested in bringing this market down to single digits again. If the current trend persists come the September reports we should be able to see a market PE around 6-7 again.

BTW, I think Chinwi is spot on. Brokerages were apparently allowed to give credit upto 10 times their capital, at the height of this alleged "credit bubble" they had lent only 3 times their capital. Why the hell did the SEC allow for brokerages to lend 10 times their capital when they felt that at 3 times some radical intervention was necessary. just think about how bloody clueless the SEC has been throughout this whole fiasco. at first they gave till December to clear credit. Then realized that this was not going to be practical so gave different deadline. Then bought in T+5. and finally in May we get a third set of deadline. Who are they kidding here.


Market Sucker


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Market Sucker wrote:our market is too illiquid to have a bubble,and also still big guys hold the key operations in share trading,so we individual selling millions cant form a bubble...



how much CDS accounts we have Question

now see how much accts in Bangladesh

Individuals opened 355,000 share-trading accounts with brokerages in the last six months,( September 3, 2007)


i agree that we need to taken account the work force percentage to get the real values,im sorry i didn't taken those numbers.

but my thinking is that too many uneducated retailers will ruin the market Mad

Kithsiri

Kithsiri
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@Chinwi wrote:This is my personal view, looking at the problem in a different way. Do not change your own ideas and actions.

There was not a bubble. !

Brokers were giving credit to the clients and they earned good interest for it. Most of the times the sellers did not withdraw money from the system , they bought some other shares. Hence the pseudo money created and grown inside the system. Brokers happily charged interest for the credit they gave without paying corresponding interest to anyone.

At the mean time, some got cash flow from margin facilities given by banks. It is acceptable because real money is involved.
Some people like me maintained "zero debt to the broker" policy most of the times. ( Unfortunately all got the same punishment)

PER was reaching 20 and 25.
Still I believe there was not a bubble. !

The bubble was suddenly found in the system when the SEC asked to settle the credit.

Now we have to find real money from outside to pay for the portion of artificial money created inside the system. Normally if a system is running well without any outside interference , artificial portions are sustained without any trouble to the system. ( If these portions are maintained within limits.)

If there was no pressure to pay by cash then there will be no bubble at the moment. Because no one wanted to sell their holding in rapid way to create a pressure.

The real bubble will be created when the prices do not match with the economic capability, other available instruments local and overseas, the background of the country etc.

Somehow, this exercise by SEC prevented forming a real bubble.

BTW, I do not think PER of 20-25 is bad for a good company in a new country anticipating and showing a rapid progress ( over 8 %) in coming years.

All will depend on the progress of the country as a whole. The current turmoil is artificial. ! Exclamation

Good explanation. Th.anks

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@Market Sucker wrote:
@Market Sucker wrote:our market is too illiquid to have a bubble,and also still big guys hold the key operations in share trading,so we individual selling millions cant form a bubble...



how much CDS accounts we have Question

now see how much accts in Bangladesh

Individuals opened 355,000 share-trading accounts with brokerages in the last six months,( September 3, 2007)


i agree that we need to taken account the work force percentage to get the real values,im sorry i didn't taken those numbers.

but my thinking is that too many uneducated retailers will ruin the market Mad

everybody and thier mother wanted to invest in the market at that time. So index going up had nothing to do with whether the retailer was educated or not. When demand trumps supply the index goes up. you can't possibly blame people for investing in the stock market. It's duty of regulators to create an atmosphere where these excess fund are absorbed properly.

insidertrader


Manager - Equity Analytics
Manager - Equity Analytics
I don't get it. What chinwi describes is a bubble. If not can anybody give an example what a bubble is?
Issue was SEC didn't act proactively enforcing law and order from the beginning. At least now SEC should be firm.

early


Manager - Equity Analytics
Manager - Equity Analytics
@insidertrader wrote:I don't get it. What chinwi describes is a bubble. If not can anybody give an example what a bubble is?
Issue was SEC didn't act proactively enforcing law and order from the beginning. At least now SEC should be firm.
This is from INVESTOPEDIA:
What Does Bubble Mean?
1. An economic cycle characterized by rapid expansion followed by a contraction.

2. A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.

3. A theory that security prices rise above their true value and will continue to do so until prices go into freefall and the bubble bursts.

ADP

ADP
Manager - Equity Analytics
Manager - Equity Analytics
I think the sec has done the right thing by imposing credit restrictions and gradually deflating what would have definitely (In my opinion) turned out to be a nasty crash of the market. The question were we in a bubble or were heading there can be a point of debate, but if you had a system that allowed people to buy without the actual purchasing power (cash to back their purchase) the unrealistic increase of stock prices cannot be avoided.

• As a result of unregulated credit in the market we all had to pay a higher price for our shares.
• People have more “money” to manipulate shares.
• And when they have to pay for what they bought WE all have to pay the price.

As to why there is a foreign outflow COULD be in preparation for the interest rate hike that would be needed to reign in inflation that is going to hit the US. At present the fed’s interest rate is zero and near zero for other instruments. The “emerging” markets played there role for a couple of years and now its time for the foreign funds to head back home when interest rates are about to go up.

It would be better if we go through this credit clearance and get it over with. Many people specially the small timers have taken hits and sold the clear the credit they owed. Its not fare to them to change the rules of the game once the game has been started.

ShareShares


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Most of the issues have now been settled down and the market has started an upward momentum. Credit Turmoil seems to be over, corporate earnings are sound, broker firms SEC and investors have gone through all these difficulties, all of us have suffered.

Investor confidence seem to be picking up without having renewed fears of credit clearance at the moment, foreigners would also return if they see that market is growing according to corporate results. Local Investors also need to maintain good standards to keep investor confidence intact, broker firms and the SEC also should not do any thing to damage investor confidence in the future. No body is prepared to infuse funds in to a place where initial investment cost cannot be recovered, no real investor is prepared to infuse funds and burn their fingers on a credit based run , fake inflated market tend to collapse. Ultimately new investments and real investors keep the market alive and investments maintain upward momentum rather than just day to day trading, CSE need to maintain higher standards, good ethics and the investors should be able to rely upon the stock market to attract investments both local and foreign. Reliable and dependable market reflecting corporate earnings would attract actual funds and investments.

insidertrader


Manager - Equity Analytics
Manager - Equity Analytics
A buys from B on credit, C buys from A on credit, D buys from C on credit, E buys from D on credit, F buys form E on credit, G buys from F on credit... Z buys from A
Each person expects to sell at a higher price and pay the price and interest. Each one successively sells at a higher price. In this system the price should always go up otherwise A cannot pay B, C cannot pay A ...
Isn't this what happened in the CSE? Isn't this a bubble?
50% of credit like this has been reportedly cleared in the last 6 months. Also brokers are clearing new debt to keep the total credit below this 50%. Other 50% has to be cleared in 2 stages in September and December, in another 6 months.

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@ADP wrote:I think the sec has done the right thing by imposing credit restrictions and gradually deflating what would have definitely (In my opinion) turned out to be a nasty crash of the market. The question were we in a bubble or were heading there can be a point of debate, but if you had a system that allowed people to buy without the actual purchasing power (cash to back their purchase) the unrealistic increase of stock prices cannot be avoided.

• As a result of unregulated credit in the market we all had to pay a higher price for our shares.
• People have more “money” to manipulate shares.
• And when they have to pay for what they bought WE all have to pay the price.

As to why there is a foreign outflow COULD be in preparation for the interest rate hike that would be needed to reign in inflation that is going to hit the US. At present the fed’s interest rate is zero and near zero for other instruments. The “emerging” markets played there role for a couple of years and now its time for the foreign funds to head back home when interest rates are about to go up.

It would be better if we go through this credit clearance and get it over with. Many people specially the small timers have taken hits and sold the clear the credit they owed. Its not fare to them to change the rules of the game once the game has been started.

This kind of deliberations are warmly welcome.

@ADP wrote:• And when they have to pay for what they bought WE all have to pay the price.
This is what we are experiencing/paying now. It is sad to hear some are still crying for credit!

P.S. Mods and Admin: Please do not move this thread to "expert chamber" as to make sure this thread is open for all expert and non-experts. Thanks.

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@ADP wrote:I think the sec has done the right thing by imposing credit restrictions and gradually deflating what would have definitely (In my opinion) turned out to be a nasty crash of the market. The question were we in a bubble or were heading there can be a point of debate, but if you had a system that allowed people to buy without the actual purchasing power (cash to back their purchase) the unrealistic increase of stock prices cannot be avoided.

• As a result of unregulated credit in the market we all had to pay a higher price for our shares.
• People have more “money” to manipulate shares.
• And when they have to pay for what they bought WE all have to pay the price.

As to why there is a foreign outflow COULD be in preparation for the interest rate hike that would be needed to reign in inflation that is going to hit the US. At present the fed’s interest rate is zero and near zero for other instruments. The “emerging” markets played there role for a couple of years and now its time for the foreign funds to head back home when interest rates are about to go up.

It would be better if we go through this credit clearance and get it over with. Many people specially the small timers have taken hits and sold the clear the credit they owed. Its not fare to them to change the rules of the game once the game has been started.

I think you and i have two very different definitions of gradual. The SEC failed to bring the market gradually down. And given the climate that has been created, by the time the SEC is done with their credit clearing the ASI will be closer to 5500. and that's a conservative estimate. The thing is the smarter people who have sold out are not buying back, we know that the market is in free fall and will be in free fall until at least november why should we commit our funds back in.

The foreign outflow is most probably because there are other markets out there that are more attractive and more liquid. Places like eastern Europe for example are probably more attractive as of now.

duke


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Around July 2010

player

player
Moderator
Moderator
dont worry guys,we had a crash in gradually from start of this year until now,now little bit to go to recover back to normal,but cant expect ASI passing 7000 in near days,btw individual stocks will have their own run in these period,so try to identify the share and win Very Happy

and also dont worry abt crash,bcoz all brokers were advised by SEC to limit big order executions and to tell investors to be not panic,so if you ask your broker to sell your stocks,he will tel bla bla things and will somehow refrain from order execution..

btw dont expect a big bull run Sad try your skill in the market Wink

Aamiable


Vice President - Equity Analytics
Vice President - Equity Analytics
@player wrote:dont worry guys,we had a crash in gradually from start of this year until now,now little bit to go to recover back to normal,but cant expect ASI passing 7000 in near days,btw individual stocks will have their own run in these period,so try to identify the share and win Very Happy

and also dont worry abt crash,bcoz all brokers were advised by SEC to limit big order executions and to tell investors to be not panic,so if you ask your broker to sell your stocks,he will tel bla bla things and will somehow refrain from order execution..

btw dont expect a big bull run Sad try your skill in the market Wink


Does that mean there is much less selling pressure. Question

player

player
Moderator
Moderator
@Aamiable wrote:
@player wrote:dont worry guys,we had a crash in gradually from start of this year until now,now little bit to go to recover back to normal,but cant expect ASI passing 7000 in near days,btw individual stocks will have their own run in these period,so try to identify the share and win Very Happy

and also dont worry abt crash,bcoz all brokers were advised by SEC to limit big order executions and to tell investors to be not panic,so if you ask your broker to sell your stocks,he will tel bla bla things and will somehow refrain from order execution..

btw dont expect a big bull run Sad try your skill in the market Wink


Does that mean there is much less selling pressure. Question

we all know how much people control the market kiyala,how many ppl have the system kiyala........so if you call your broker and tell to sell,then adviser will tell you to hold..
btw today we saw a flat scenario where no one want to sell or buy except in selective counters...so bear slowing its run and let bull to lift the head Very Happy

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
Unlikely. The fact that the brokers want to meet the SEC in a hurry on Thursday means that there is alot of credit left with no buyers.

player

player
Moderator
Moderator
@mono wrote:Unlikely. The fact that the brokers want to meet the SEC in a hurry on Thursday means that there is alot of credit left with no buyers.

yes there is credit with big guns,you can see this by MARKET ORDER trades which happened in big qtys, some shares went down deeply in instances.

ADP

ADP
Manager - Equity Analytics
Manager - Equity Analytics
@mono wrote:
I think you and i have two very different definitions of gradual. The SEC failed to bring the market gradually down. And given the climate that has been created, by the time the SEC is done with their credit clearing the ASI will be closer to 5500. and that's a conservative estimate. The thing is the smarter people who have sold out are not buying back, we know that the market is in free fall and will be in free fall until at least november why should we commit our funds back in.

The foreign outflow is most probably because there are other markets out there that are more attractive and more liquid. Places like eastern Europe for example are probably more attractive as of now.


@ mono

I am of the view that to spread the credit clearance over a period of one year and couple that with really good earning results (for a majority) of companies and higher investor participation would have been more than sufficient to bring it down gradually.

There are two things I take issue with though,

• The time gap between IPO’s .
• Not releasing any figure on how much credit actually is there to be cleared (I can only ASSUME that the reason this figure is not released is the shier size of the credit outstanding).

We have been reputedly presented with opportunity to clear the credit but have not taken them up. As a regulator the SEC should follow through on the stated time frames of 25% in SEP and 25% in DEC and get this over with.

After that we will have a clean market, one that is fueled by REAL purchasing power and people would be more cautious on gambling and more serious on investing.


Disclosure: I am a “shoe shine boy” and all criticism are welcome as this is all part of my learning experience.

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@ADP wrote:
@mono wrote:
I think you and i have two very different definitions of gradual. The SEC failed to bring the market gradually down. And given the climate that has been created, by the time the SEC is done with their credit clearing the ASI will be closer to 5500. and that's a conservative estimate. The thing is the smarter people who have sold out are not buying back, we know that the market is in free fall and will be in free fall until at least november why should we commit our funds back in.

The foreign outflow is most probably because there are other markets out there that are more attractive and more liquid. Places like eastern Europe for example are probably more attractive as of now.


@ mono

I am of the view that to spread the credit clearance over a period of one year and couple that with really good earning results (for a majority) of companies and higher investor participation would have been more than sufficient to bring it down gradually.

There are two things I take issue with though,

• The time gap between IPO’s .
• Not releasing any figure on how much credit actually is there to be cleared (I can only ASSUME that the reason this figure is not released is the shier size of the credit outstanding).

We have been reputedly presented with opportunity to clear the credit but have not taken them up. As a regulator the SEC should follow through on the stated time frames of 25% in SEP and 25% in DEC and get this over with.

After that we will have a clean market, one that is fueled by REAL purchasing power and people would be more cautious on gambling and more serious on investing.


Disclosure: I am a “shoe shine boy” and all criticism are welcome as this is all part of my learning experience.


Appreciate both Mono and ADP in sharing views.

@ADP

@ADP wrote: ... all criticism are welcome as this is all part of my learning experience.

Need not to mention, this is apparent in your writing style (at least to me)!

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@ADP wrote:
@mono wrote:
I think you and i have two very different definitions of gradual. The SEC failed to bring the market gradually down. And given the climate that has been created, by the time the SEC is done with their credit clearing the ASI will be closer to 5500. and that's a conservative estimate. The thing is the smarter people who have sold out are not buying back, we know that the market is in free fall and will be in free fall until at least november why should we commit our funds back in.

The foreign outflow is most probably because there are other markets out there that are more attractive and more liquid. Places like eastern Europe for example are probably more attractive as of now.


@ mono

I am of the view that to spread the credit clearance over a period of one year and couple that with really good earning results (for a majority) of companies and higher investor participation would have been more than sufficient to bring it down gradually.

There are two things I take issue with though,

• The time gap between IPO’s .
• Not releasing any figure on how much credit actually is there to be cleared (I can only ASSUME that the reason this figure is not released is the shier size of the credit outstanding).

We have been reputedly presented with opportunity to clear the credit but have not taken them up. As a regulator the SEC should follow through on the stated time frames of 25% in SEP and 25% in DEC and get this over with.

After that we will have a clean market, one that is fueled by REAL purchasing power and people would be more cautious on gambling and more serious on investing.


Disclosure: I am a “shoe shine boy” and all criticism are welcome as this is all part of my learning experience.


The problem here is that as it stands you're not going to clear the credit by december unless you're willing to let ASI slide to the mid to low 5000s or possibly lower.

duke


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@mono wrote:
The problem here is that as it stands you're not going to clear the credit by december unless you're willing to let ASI slide to the mid to low 5000s or possibly lower.

But if that's the real value, why should anybody try to keep it up?
We had 2 years of going over the roof. So it's natural for it to go the other way.

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics
@duke wrote:
@mono wrote:
The problem here is that as it stands you're not going to clear the credit by december unless you're willing to let ASI slide to the mid to low 5000s or possibly lower.

But if that's the real value, why should anybody try to keep it up?
We had 2 years of going over the roof. So it's natural for it to go the other way.

Erm no. it's the real value minus at the very least 23mn cash that is floating around in my CSE account. we'll see the real value when myself & others like myself fully commit to the market.

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