Europe, hows the crisis going on today?

Based on New York Times's today review, talked about European crisis, NYT stated in their deadline

picture courtesy of eurofm.org

Here they are the quote:

Europe’s Markets, No Longer in Lock Step

Money managers point to signs like these: Investors barely flinched during the banking crisis last month in Cyprus, an indication that the Continent may be moving past its manic phase. The Vstoxx index, a measure of stock market volatility in the euro zone, is about half of what it was in the fall of 2011, when the region’s debt crisis spread to Greece and Italy. And Europe has actually been the best-performing major overseas market since the start of 2012, with equities surging nearly 19 percent.
“The markets get that it’s not 2011 anymore,” said Edward A. Gray, a co-manager of theDelaware International Value Equity fund. 

New York Times, 7th April 2013

If we want to analyze what is the meaning of lock step, the easy way to translate it is 

we have several options to choose our stock and make the most effective Portfolio, with reasonable aggregate risk, and suited with our expected return. 

The problem is, during the crisis, most of stock has the same behavior and it affect to the condition that we don't have so many choice to form the effective portfolio. One  rule of thumb to measure effective portfolio is based on the aggregate correlation which tend to be zero or negative. So how is it look like during the crisis? 

Based on aforementioned idea, I will try to make small research within top 50 most blue chip stock in Europe which belongs to STOXX 50. We will try to do simple research to test whether in 2012 the condition of the stock market in europe still in the same situation like the previous years or not. I take 3 samples from the company that makes highest return today and also from the lowest. All of these stocks is registered as the most liquid stock in Europe, which is known as STOXX 50

Top WInner

UniCredit SpA	+1.98%
Enel SpA	+1.98%

and also top losers 

Bayer AG	-3.56%
LVMH Moet Hennessy L...	-3.35%
France Telecom	-3.29%

If we follow the rule of thumb, there is no any dubious that the correlation among these stocks are supposed to be negative, lets see hows their correlation in the graph and in the table below 

	FTE	ENEL	BAYRY	LVMUY	UCG
1	1.0000	0.4487	0.3381	0.2084	0.2504
2	0.4487	1.0000	0.5410	0.3220	0.3065
3	0.3381	0.5410	1.0000	0.5882	0.2960
4	0.2084	0.3220	0.5882	1.0000	0.2634
5	0.2504	0.3065	0.2960	0.2634	1.0000

If we try to analyze deeply the graphic, the correlation among these stocks is  started to be more since the First quarter of 2012. It shows that somehow the condition after 2012 in European market is getting better. Even though its not fully recover. 

Based on the rule of effective portfolio, this stock should offside and balance each other, therefore the correlation is supposed to be negative. 

To sum up, I agree with the news from NYT that European Stock Market is not in lock step position anymore. But somehow the positive correlation among these sample stocks still indicate that Investor does not have chance to make any better portfolio. 

The merger background of SCTV and Indosiar

In most recent days we hear that two big television firms who just deal and did merger in Indonesia, there are Indosiar and SCTV. Eventhough both of this company never be listed in LQ 45 (most liquid stocks in Indonesian market) but the merger still going on. It seems that there are no dubious words between this process that actually they are try to gain more in size. It is due to the competition in Broadcast industry that getting higher and steeper.

In today review, I want to see hows the movement of Indosiar stock strength, the reason is to see if the merger is actually will benefit for them or not in fianncial market condition.

Figure 1.
The comparison of adjusted close price between index (IHSG) and the price of SCMA (SCTV)  and IMDK (Indosiar).

 Figure 2. The compounded continues return of Indosiar and SCTV, and also IHSG.

 Figure 3 Rolling 24 months beta of Indosiar

 Figure 4 Rolling 24 months of SCMA beta

Figure 5 Regression of IDKM and IHSG

Figure 6 Regression of SCMA and IHSG


From the graphics above, we can see some hidden information related to this merger.
First, when the date approach the merger announcement, the price of both stocks is rising, it seems that investor or any market player can catch the hidden news from this moment.
Second, the continuously return of the stock after 2012 rise stunningly, leaving the aggregate continuously return of whole stock, the biggest owner of the stock will gain huge profit if they release their stock on proper moment. It is due to the stock of both firms is not sold anymore when they announce the date of merger.
Third, the allegation that the two firms will merge can be seen at the second quarter of 2010, the stock started to be more sensitive toward market, the rise of beta which higher than the average of 5 years average beta indicate that the owner of both stocks started to use this momentum to bid their luck.
Fourth, the regression line show that however both of this stock is still categorized as high risk stock, therefore market should be aware and not put this stock as long term investment.

To sum up, the graphs above is supposed to show the psychological movement of stock player in facing the issue of firms merger. The rise of stock sensitivity toward market and also the rise price show that any signal which is issued from credible or incredible resource has affected the psychological of market.