Yesterday the ECB announced the key rates and as the streets expected, they were unchanged.
There was no positive out of the press conference from Trichet, the only thing he did was subtly pleading to the world that "EURO is a stable currency' and reiterated again the same things that the ECB would leave no stone unturned to save the real economy. This lead to a over 200 points rally in Dow Jones and more than an 1.5% gain in Euro. I believe that its more of a short covering bounce back and the only direction the Euro is headed is southwards.
I expected July to be a calm month for the markets, and the biggest reason is that the China AG Bank is coming up with the world's biggest IPO of all time. On July 16th its coming up with an IPO of $30 billion and this could really suck huge liquidity from the markets even if it is just fully subscribed. One should wonder what if, the issue gets oversubscribed by two times and three times. It could evaporate the liquidity of the size of two times Reliance Industries total market capitalization which is around Rs 3 lakh crores.
In history too IPOs of high magnitude from good companies have lead to a dearth of liquidity in the Secondary Markets and this time also I expect the same. AgBank, whose 350 million customer base is bigger than the population of the United States, had $US7.1 trillion in assets as of 2008, its last public financial filing, is a bank which even the institution would love to own and hence the liquidity could dry up.
Hence a good trading strategy for Traders could be to establish position in put options in Nifty expiring in the month of July, as the VIX has also come down significantly. For Investors the best is to stay out of any extravagant short term positions and continue their SIP.
Happy Investing...!!!
Nice Perspective Rahul...Any views on June Series??.. Considering Hungary Debt crisis looming large and announcement of interest rates by ECB..
ReplyDeleteRead this article -
ReplyDeletehttp://www.marketwatch.com/story/chinas-agbank-allots-35-of-ipo-to-key-investors-2010-06-10
It talks about how they are trying to avoid creating such a situation
Thanks Mohit, I would update all my readers regarding the Hungary Crisis, but regarding your article I can say only one thing and its that those corner stone investors are also secondary market investors and hence the liquidity dry up is happening in this case also.
ReplyDeleteWhen any one applies for an IPO there money is stuck till the allotments get done.If the company is providing them a qouta , then i believe there money wont be stuck.....so its not going to atleast avoid a cranky liquidity situation
ReplyDelete