Market Forecast 2008

2007 will become history in just a few hours. It is a routine for mass media to forecast market performance for the coming year. Based on a commentary in the current issue of 'Economist', the financial market in 2008 will be full of fluctuation. Mounting risk factors will make yielding more difficult when compared with the bullish performancc in 2007.

• Credit crunch will still haunt the market

Credit crunch will still haunt the market. The actual amount of capital set aside for replenishing the loss incurred by credit crunch is still a mystery. Stocks of financial institutes will be on the bear run. The problem seems unlikely be solved by the end of 2008.

The fall in property market will bring a downturn to the U.S. economy and the backlash will eventually drag down other sectors of the economy. Commercial property market will be the next victim. The great discount between the stock price and asset valuation of construction companies is an indicator of the current pessimistic atmosphere of the property market.

• Soaring CPI in China as a hidden threat

High inflation rate in China will prompt the central government to further raise the interest rate and capital reserves of banks. Soaring inflation rate hampers the livelihood of the poor and poses threat to social stability. Political stability is the prime concern of the central government. A stronger hand on regulating the booming asset price is nothing beyond expectation.

• Economic downturn in the U.S. will bring impact to export in China

Export is still the core sector of China's economy. A downturn in the U.S. economy together with a continual rise in Chinese currency will put severe burden on export sectors. The rise in Euro will mean more political pressure on European governments to impose trade barrier against China's export. In mainland, economy based on technology innovation and local consuming market is still in its infant stage. Whether China will successfully be transformed from export based economy to service based economy remains a question. Will China follow the destiny of those ex-industrial countries like Thailand and Philippines - Economic growth entered the bottle neck and started to decline owing to the failure of transformation.

• The looming black swan may give market a blow

'Black swans' as coined by Taleb in his new book are any events beyond experts' prediction. 911 attack is a vivid example. The possible black swans like Iran's nuclear crisis, political turmoil in Pakistan, mounting cross-strait tension, Avian flu outbreak, unwinding activities as a result of a rise in Yen and environmental disasters caused by climate change will likely emerge. These looming black swans will give market a blow and create more volatility in the market.