Fed's decision to taper was because unemployment rates were still high. However, cheap money does not seemed to flow to where it is suppose to flow. According to Bloomberg, the QE saves companies such as Verizon, Apple and other companies about $700Billion in interests payments. However, it does not seem to effectively bring the jobless rate down.
What is seen is that stock markets are rallying and companies are able to lend cheaply to expand business. This can lead to a bubble when some companies spend the cheap loans on bad investments, and later not being able to pay back. Another scenario can be as such that companies took advantage of the cheap loans to borrow excessively, without concerns of being able to pay back and when interest rates hike, these companies default on their payments.
These two scenarios are likely to bring about a great correction like the Lehman Brother's bankruptcy back in 2009. And this time it could be bigger because this time the target audience are companies instead of the local public. The companies with good management and strong cash flow will inevitably benefit from the QE in the long run.
Therefore, right now the good investment opportunities lies in the US.
What about Singapore stocks?
The cheap money continue to flow into Asia by spurring US companies spending and currencies has to be strengthened to control inflation growth.
Stocks will likely to grow at a slower pace, as spending power is dispersed within the Asian region. I expect to see healthy and steady growth in the Singapore stocks. STI could go up to 3,300 this year, but looking ahead, tapering could set in a major correction in the stock market. Now is a good time to offload stocks which are heavily in debt, and then buy back when STI retreats to 3,000.
Companies with solid fundamentals and remains low and or zero debt position will bear sweet and juicy fruit in the long run.
Source: http://www.bloomberg.com/news/2013-09-17/bernanke-saves-companies-700-billion-as-apple-to-verizon-borrow.html
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