(C) Correction and Fundamentals

In the beginning of the ongoing correction we were observing a whole lot of deviations from the intrinsic values of the majority of the traded companies, if not the whole market. Plenty of positions were traded at triple P/Es, we experienced two-folds in a quarter of negative income companies…

I believe that the outflow which brought SOFIX to P/E = 24.55 is the sobering cold shower. Currently, the price multiples are returning to sensible levels, but we still witness strong deviations in the illiquid positions.

Searching for fundamental support in the macro-data we could hardly take hope. Driven by negative news overseas for liquidity squeeze in the financial sector and recession in the economy, the expectations are more of a smooth advance. On the other side most of the real GDP forecasts for the country range in between 4.5% to 6.5%. Furthermore, the expectation for outflow of the developed economies growth towards the emerging markets strengthens the expectations of the capital markets trend reversion.

Strong evidence of the mood turnaround will be any possibly good 2007 reports as well as the first IPOs results. After such a strong correction, all the market participants will be extremely cautious in their valuations of the public and to be public companies.

I personally, expect that during 08Q1 the fear will prevail on the BSE, which taken positively will not allow the euphoria and the greed to inflate the market.