Saturday, August 6, 2011

The Downgrade

Saturday morning in India brought really breaking news - that the S&P had downgraded USA. The news was quite exciting for business news channels, with many running exclusive programs on the event. The downgrade was announced after American markets had closed for the week, therefore the impact, if any, will be felt only when Asian markets open on Monday.

I assume that the main impact of the downgrade is psychological - a warning that the USA should set its fiscal policies in order. The other two rating agencies, Moody and Fitch have maintained their top ratings for the USA which means that the downgrade is not accross all rating agencies. Moreover, the power of the rating agencies may have been overestimated, after all it is a private company managed for profits which is doing the ratings!

What happens on Monday? The answer is to wait for the Asian markets and the SGX Nifty to give clues. Even if there is a gap down, I do feel that next week should see a short term low in the Indian Indices. But, over the next few months, Indian markets are likely to underperform the American and European markets.


Pi said...

oh things are going to be nasty during early morning atleast. there is simply going to be panic across all markets, and thats also cause asian traders typically panic in such incidents.. ive seen it many times over the last 2 yrs. after the europeans come in there might be more selling, but things will stabilize as volumes and liquidity is restored. I am talking from a perspective across equities, commodities & fx.

Pi said...

also something very interesting happened on sat morning. mcx remains open for 4 hrs on sat mornings frm 10-2pm. i was expecting to see straight off falls of 3-4 % in crude and industrial metals but they actually opened flattish and only started seeing selling after 15 odd minutes. Crude ended down 1.5%, base metals 3-4%. Gold, silver rallied 2% each. It was very interesting, as if local commodity traders had not heard the news yet and/or were slow to react. Was very easy to make money of this delayed reaction. In fact I had my best day ever, just shorted base metals/crude, bought gold using all my margin money available. covered by eod. awesome !!