Market Outlook: 04-23-08

Robert Hsu, April 23, 2008

We're in the middle of earnings season, so it should come as no surprise that the market's actions in recent weeks have been in response to company reports. In April, after a round of better-than-expected earnings, the domestic markets rallied, with the S&P 500 up 4.3% -- that's its best week since February.

With last week's move up, the S&P has rebounded 8.1% from a 19-month low set on March 10. But it is still down 6.3% for the year. Much of the losses this year, as you know, can be attributed to the continued weakness in the financial sector. One interesting thing to note, though, is that financial stocks rallied in the wake of more multi-billion dollar write-downs from Merrill Lynch and Citigroup. This shows that a lot of the bad news has already been priced into the market.

In addition, Asian stocks moved up slightly last week with the MSCI Asia-Pacific Index gaining 0.4%. But the index is still down 8% in 2008 due to concerns that mounting credit losses and a U.S. recession will erode earnings.

But that doesn't even touch on the losses that we're seeing this year in Mainland China's benchmark CSI 300 Index, which tracks yuan-denominated A-shares listed on China's Shanghai and Shenzhen exchanges. Since setting a record high on October 16, the Index has dropped 44%, wiping out at least $840 billion from the value of the nation's stock market.

Much of the losses on the CSI 300 were triggered by the global economic slowdown combined with the lofty valuations of Chinese stocks. And as investors became convinced that the Chinese government wouldn't intervene to stop the fall, the slide accelerated -- the index tumbled 14% in the last week alone, the biggest drop since the index's introduction in April 2005.

With Chinese stocks taking at hit this year, I think valuations are finally looking more attractive in China. I will watch the market closely over the next couple weeks and months, and let you know if any opportunities become available.

To get the latest updates on the market and which stocks Robert Hsu is recommending now, join Asia Edge.

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