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El-Erian: Not ‘Flash’ Crash But Market Sell-off
Aspire | 25 August 2015
By: Vance Wong
Articles (74) Profile

After a huge drop on Friday, the Dow Jones Industrial Average plunged more than 1,000 points at the opening.

The first thing that one must look at when looking for the reason behind the 1,000-point drop of the S&P 500 Dow Jones is the Yuan (CNY) devaluation on August 11. Also, the S&P 500 had been running for almost four years without a significant correction.

Chief Economic Adviser at Allianz Mohamed A. El-Erian commented that this ‘Flash’ crash, as some experts like Jim Cramer termed it, is actually a market sell-off. Experts from Goldman Sachs also maintain their view that a US recession is very unlikely.

El-Erian: This Is an Unpleasant Repricing

When one sits back and analyse, the recent market sell-off involves the realisation that growth has been slower than expected and policies are not as effective as it should have been, commented El-Erian yesterday.

While the recent rout have been depressing for investors, they can still look at stocks that have value and balance sheets with a lot of spare cash. Some of these are actually tech companies.

Nevertheless, one should never forget the impact of the upcoming rates hike, though it seems like it would not happen in the coming weeks given the current situation. As such, he thinks that this is an unpleasant repricing, but definitely not a huge crisis.

Jim Cramer: Sell-Off Due to Factors outside US

According to Jim Cramer, CNBC’s “Mad Money” host and former hedge fund manager, the sell-off right after the market opened on Monday was mainly due to economic factors outside the US.

He warned investors to never confuse the recent roller coaster ride with the reality of the economy. The main factors in Cramer’s opinion are the indecisiveness of the Fed and the ridiculous rally of Shanghai Composite Index (SHCOMP) over the past year.

The “Mad Money” host added that this sell-off is by no means a crisis like 2008’s. If anything, Cramer projects another seven to eight percent dip before the S&P 500 will start climbing again.

Goldman Sachs: Increased Stock Volatility till Rout Ends

Goldman Sachs experts acknowledge the slowdown of the Chinese economy and also other emerging markets. However, they pointed out that the European economy is seeing some accelerating growth, which in their opinion, is a more significant factor in long-term growth.

The experts have similar views as El-Erian, maintaining that the market sell-off is temporary and we should expect a recovery. The only big question is when, especially considering the imminent rate hikes, though some economists are speculating that the rates hike would be delayed till next year March.

The experts said that investors should expect increased volatility, especially in the stock markets, not just the US. This is the time where diversified portfolios would thrive and prove its importance.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

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