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Nervousness on the rise as Black Monday anniversary looms

IT’S usually possible to pinpoint a theme or two that drove prices throughout a week just past. Sometimes it’s a play on the banks, other times it’s property, shipping or China. This week though, is remarkable for the fact that there really is no single unifying theme that could be readily identified – except for heightened volatility of course.

In almost all five trading days, the Straits Times Index underwent wild swings, opening sharply lower or higher, depending on Wall Street’s overnight close, then reversing direction quickly afterward.

One hundred point moves were thus common, depending on how Hong Kong, China and/or the US futures market performed.

What this meant was that structured warrants were the favoured investment vehicles since these instruments thrive on volatility. In play were mainly those written on the Hang Seng and STI, while China shipyard Cosco Corp’s push to new highs ensured its warrants were also in heavy demand.

On Wednesday, when the STI underwent its wildest ride of the week, traversing 130 points from low to high, $312 million was traded in the warrant segment, roughly three times the recent average.

Increased volatility also meant increased nervousness, a situation not helped by the fact that yesterday was the 20th anniversary of the crash of Oct 19, 1987.

Put a nervous market that had reached giddy new heights together with the superstition associated with that Black Monday date, then throw in a 75-point drop in the December futures on the Dow Jones Industrial Average, and perhaps yesterday’s 61.71-point drop in the STI to 3,747.98 comes as no surprise.

For the week, the index lost 110 points or 2.9 per cent.

The biggest index losers in yesterday’s sell-off were the Singapore Exchange, the banks and SingTel.

SGX’s 80-cent loss at $14.90 cut 12 points off the index while the banks’ loss accounted for a total of 23 points.

It wasn’t just the index that experienced a volatility spike. In the second line, Japanese-owned finance company Uni-Asia Finance exhibited violent moves to the downside early in the week when broking firms imposed trading restrictions on its shares, in most cases limiting the quantity of Uni-Asia that could be bought and/or requiring cash payment upfront for purchases.

After having ended last Friday at $2.50 (it touched an intra-day high of $2.79 that day) Uni-Asia’s shares yesterday ended at $1.59, a loss of 36 per cent for the week. It listed in August at an offer price of 55 cents and the bulk of its rise since then came earlier this month.

Other second liners that saw activity to varying degrees were mainly China-based, the outcome of a belief that China stocks listed here – dubbed S-shares – should command the same lofty valuations as those listed on the mainland.

Low-priced issues have always been popular in the local market and this week was no different. Ei-Nets and Memstar have been in play after the entry of Jade Technologies’ boss as a strategic shareholder, while construction issues such as Lian Beng and Yongnam have been the subject of various broking upgrades because of the obvious property boom angle.

 

Source: Business Times 20 Oct 07

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