The Market Correction

By: ispeculatornew
Date posted: 03.04.2007 (12:00 am) | Write a Comment  (0 Comments)

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In the past week U.S. equities and foreign stocks have taken quite a beating and in my opinion it was long overdo. The Dow was up 16% last year and the Nasdaq made a run of over 17% from its lows in the second half of the year. The U.S. stock markets kept rising this year even though the economy isn’t growing very fast and the housing market is correcting from its bubble. Something had to give and the result was the sudden drop in U.S. stocks.

One of the catalysts for the drop in US stocks was the carnage of the Chinese market. The Chinese market lost 9 percent on Feb. 27 and the drop spooked investors around the world. Many reasons have been given for the drop in the Chinese market but the main reason is valuation. The Chinese market had a gain of over 120% last year and it is currently a bubble waiting to burst. The Chinese economy has been growing at around 10% a year but that doesn’t justify such a huge increase in the price of Chinese stocks.

I think there is further downside for both U.S. and international stock markets (especially China and India). I would recommend staying away from most Chinese and Indian stocks and I would focus on stocks that have quality earnings growth and descent valuations.

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