16 Apr 2013

Flash Update

We saw a sharp decline in risk markets last night (S&P500 down 2.3%, CRB Index down 2.2%, JPY gained 1.9%, High Yield Bonds lost 0.6%). While some may attribute this to the Boston bombing, we believe that the sell off was due more to the effect of gold prices plunging (see chart below), resulting in margin calls on those who are still long on this asset. At the time the bombs went off at around 3pm, the S&P was already down by 1.7%, so the sell off had already started prior to this, at the bell.

Image courtesy of Stockcharts.com

While there will be a short term (days to weeks) negative effect, e.g. more caution in markets, the medium term (weeks to months) impact is neutral. Historically, terrorism events do not cause a shift in business activity. 9/11 saw the market respond with a V-shape recovery within a month. Hence it is still important to focus on the business cycle. The same can be said for margin calls, it's the business cycle that matters, not the margin calls faced by leveraged investors.


Our recommendation is to stay invested. As such we do not advocate any change to our portfolio positions at this time.

Notwithstanding our clinical views as to the effect of the bombings on the financial markets, our thoughts and prayers do go out to those and the families who have been affected by this senseless tragedy.

IMPORTANT NOTES: This report is provided for the information of the intended recipient only and should not be reproduced, published, circulated or disclosed to any other person without the prior written consent of GYC. The information and opinions expressed herein reflect a judgment of the markets at its original date of publication and are subject to change without notice. GYC does not warrant the accuracy, adequacy or completeness of the information herein and expressly disclaims liability for any errors or omissions. The information is given on a general basis without obligation and on the understanding that any person acting upon or in reliance on it, does so entirely at his or her own risk. Any projections or other forward-looking statements regarding future events or performance of countries, markets or companies are not necessarily indicative of, and may differ from, actual events or results. Neither is past performance necessarily indicative of future performance. You should make your own assessment of the relevance, accuracy and adequacy of the information contained in the information provided and make such independent investigations as you may consider necessary or appropriate. Accordingly, neither GYC nor any of our directors, employees or Representatives can accept any liability whatsoever for any loss, whether direct or indirect, or consequential loss, that may arise from the use of information or opinions provided.

GYC FINANCIAL ADVISORY PTE LTD  1 Raffles Place #15-01 One Raffles Place, Singapore 048616
Tel: (65) 6349-1441 | Fax: (65) 6349-1440 | Email: enquiries@gyc.com.sg | Co Reg: 199806191-K
Website: www.gyc.com.sg