Panikos Teklos: “Within an overheated market it only takes a spark to start a fire”

“Within an overheated market it only takes a spark to start a fire. This is why any number of looming sparks could be blamed for Monday’s market beatdown, ranging from recessionary concerns about the US economy, the weaker-than-expected June jobs report, higher unemployment numbers and seemingly slow-footed response from the Federal Reserve’s MPC to lower interest rates to the unwind of a popular global currency trade and lastly concerns over expensive valuations - the S&P 500 last week was trading at 20.7 times forward earnings,” Panikos Teklos, Partner, Xpadia suggests.

Speaking to CBN after being asked to comment on the recent financial market turmoil in many parts of the world, Teklos continued, “The truth is that market participants have been considering a market correction but getting the timing right is the multibillion-dollar question which explains why always in a room full of economists you get a whole range of different answers”

“Along with economic and monetary policy concerns, the market had to cope with the unwinding of a popular trade that entailed borrowing in cheap currencies such as the Japanese yen and using it to fund higher-yielding currencies and assets such as the US dollar and US Tech stocks— known as the “carry trade”. When the yen started to strengthen, this made the carry trade less attractive, and on top of it, an unexpected rate hike last week from the Bank of Japan led to an incredible yen rally which accelerated and exacerbated the unwinding of the trade. In addition, a “snowball” effect is created when for traders set “stop-loss” levels which get triggered and exiting positions creates a ripple effect of triggering such levels which causes even more selling and losses,” he went on to state.

“Finally,” Teklos continued, “geopolitical concerns persist, with markets worried over the situation in the Middle East and Ukraine, as well as a rapidly changing political landscape in the U.S. due to the upcoming presidential elections in November this year.”

As also noted by the expert, “Cyprus, although very close geographically to Israel and the surrounding region, has proved to be a safe harbour or hive for many investors and businesses every time there has been turbulence in the Mideast region. There may be an impact from tourists in those affected regions, however, there may be relocation interest precisely if the perception is that Cyprus remains safe.

At the same time, investors from the region may decide to accelerate their investment decisions regarding projects in Cyprus, transferring their headquarters or establishing a base in Cyprus.”

Teklos went on to conclude, “From a global investor standpoint, this sell-off should not cause any panic and any strategic or tactical asset shifts should be considered within the wider framework of diversification of the portfolio and forward looking trends since the markets often have sharp corrections and then recover therefore resulting in only mark-to-market losses rather than real losses (unless stop-loss levels are triggered).”