As another panicked sell-off rocked world stock markets on Thursday, investors have no shortage of unseemly culprits.
Demonstrators lined the streets of Athens again in a scene eerily reminiscent of the murderous riots earlier this month that put the very existence of the euro into jeopardy. And South Korea pinpointed a North Korean torpedo as the cause of a sunken ship that drowned 40 sailors weeks ago. Officials in Pyongyang responded promptly with vows of war if further sanctions were put on the country as a result.
The pandemonium is understandable -- and technical analysis says the signals are bright red -- but the ensuing sell-off may still be overdone. Plenty of bright spots are getting overlooked as spectators rush to marshal only the negative in a knee-jerk reaction to explain the stock market's tumble.
Promising Debt Auctions in Europe
Despite much angst about a European sovereign debt crisis, for example, the actual performance of European sovereign debt is being discarded. And the results there are much more promising than the paranoia might suggest.
On Thursday, Spain auctioned off 3.5 billion euros of 10-year bonds at a yield of just 4%. Bid-to-cover ratios were a strong 2 to 1 for the auction, which came in at the top of the range and further signaled robust demand. The move follows a similarly promising auction in Italy last week, and yields on in countries like Greece and Portugal have also stabilized following nibbling interventions by the European Central Bank.
Rather than focusing on sovereign yields -- the real battleground in Europe's credit woes -- investors are instead fixated by the sliding euro, which they misinterpret as simply a referendum on Europe's economy. But the euro is as much a measure of risk appetite in the market as it is of the eurozone's health, and risk has been fading fast as the rush into Treasurys demonstrates.
Problems and Promise in Asia
Europe isn't the only region that's making investors anxious. Fears of overheating continue to plague the blistering Chinese economy. And while concerns about inflation there are real, so is the overlooked impact of the demand being generated just as the world fears a slump. At current growth rates, for example, China tacks on an economy one-and-a-half times as large as Greece's each year.
And that demand is helping to drive an export-led recovery in Japan, which posted its fourth consecutive quarter of solid growth according to government statistics released on Thursday. (American exports, too, are getting a major boost as the Philadelphia Federal Reserve report demonstrated on Thursday.)
Another overlooked silver lining of the falling euro may be a deferment of Beijing's politically thorny decision about revaluing the yuan. In the euro's loftier days, European leaders like French President Nicolas Sarkozy pounded the table about the unfair advantage China enjoyed because of an artificially cheap currency. But a major adjustment has in effect been made on that front given the yuan's peg to the rising U.S. dollar.
Add it all up, and stock valuations on both sides of the Atlantic actually look appealing. Of course, the fear reverberating across the world could always feed on itself and lead to another leg down in the near term. But for investors with an investment horizon longer than Wall Street's rapidly shifting attention span, now could be a good time to wade in.
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