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Asian stock markets make sharp rebound

INVESTORS who could not exit fast enough last week rushed back into Asia stock markets yesterday, sending share prices soaring.

The gains stunned even hardened traders. Singapore’s Straits Times Index (STI) rocketed 191.67 points, or 6.12 per cent, to 3,322.38, its second biggest single one-day gain ever, following a 204.27 point surge on Feb 2, 1998.

But Indonesia’s Jakarta Composite Index managed to trump the STI, leaping 6.97 per cent, while Hong Kong’s Hang Seng rose 5.93 per cent and South Korea’s Kospi was up 5.69 per cent.

It vindicated many market experts’ belief that last week’s regionwide sell-down – the STI dropped by 12.5 per cent at one point between Wednesday and Friday – was irrational and indiscriminate.

The opening bell here was more like a starting pistol, with traders piling in to battered banks, property and shipyard counters. The STI shot up more than 110 points in an instant and by 5pm, about $28.5 billion had been added to the value of local shares.

‘Fortune rewards the brave-hearted. Anyone who picked up blue chips as they were sold down last week would have made a big pile,’ said a trader.

While the size of the gains took some by surprise, most traders had expected the market to rise, given the dramatic gains in Europe and on Wall Street last Friday after a cut in a key US interest rate.

The Federal Reserve slashed its discount rate from 6.25 per cent to 5.75 per cent to make loans to banks cheaper and calm global markets that went into a panic over a crisis in the US mortgage market.

And last night, European bourses advanced for the second day. London was up 0.5 per cent, while Paris rose 1 per cent.

Another big boost to Asian bourses came as the Japanese yen weakened sharply against the US dollar and other currencies, after appreciating strongly last week.

This eased concerns that investors, who have borrowed massively in yen to buy assets in countries with higher interest rates, will unwind their positions soon.

A Citigroup report yesterday also showed that, despite the massive regionwide sell-off by hedge funds, long term investors who parked their funds in offshore Asian funds are staying put.

Net outflows from funds that invest only in Asian markets totalled US$73.5 million (S$112.3 million) in the first week of this month and a just US$100,000 last week.

By contrast, about US$4.5 billion was taken out during the correction in early March, while US$4.9 billion was withdrawn during the Asian market turmoil in May and June last year.

Citigroup also noted that in some markets like South Korea, local institutions and individuals had been big share buyers as hedge funds stepped up selling.

Yet experts do not believe the sharp rebound means the bulls are back in charge. Many are urging caution, warning that more wild swings are likely, while others want the US Fed to take more action on interest rates.

‘The Fed has its back against the wall, and we feel the inevitable outcome is further volatility,’ said European private bank LGT.

Deutsche Bank Private Wealth Management chief Asian strategist Marshall Gittler warned: ‘While the strong buying suggests that there is some bottom-fishing in the equities markets, we are not seeing a similar improvement in the bond market where the crisis started.’

AmFraser Securities’ research head Najeeb Jarhom added: ‘Traders should take profit and wait for the next downturn…The rebound does not mean that the market nightmare is over yet.’


Source: Business Times 21 Aug 07

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