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Asian stocks rebound as US dollar steadies

Hedge funds, traders snap up blue chips, hot China plays across Asia on greenback’s gain

REGIONAL stock markets, including Singapore’s, made startling recoveries in late trading yesterday after nosediving early in response to a big drop on Wall Street.

The Straits Times Index (STI) collapsed by 85 points right after the opening bell but finished in positive territory – up 26.55 points at 3,438.27.

The catalyst for the dramatic comeback was a steadying of the greenback against the Japanese yen, alleviating fears of an exodus of funds and sparking a buying spree in Tokyo that spread to the rest of Asia.

Hedge funds and big-time traders snapped up blue chips and hot China plays across the region.

Some dealers attributed the big shift in mood to a rumour that the United States Federal Reserve might consider another rate cut.

Fears are growing that the US may be tipped into a recession by the worsening mortgage crisis.

Market watchers, however, dismissed the rumour as too far-fetched to explain the region’s strong recovery.

‘It has become a no-brainer trading Asian shares. Prices swing in tandem with the movements of the US dollar against the yen,’ said a dealer.

Traders have been reacting to every tiny movement in the foreign exchange market for any possible unravelling of yen carry trades – massive loans taken out by hedge funds in Japan, where interest rates are low, to make huge bets on higher-yielding assets elsewhere.

The STI’s early plunge came as the US dollar shed almost one yen to 109.63 in early trade. Once the currency bounced back to 110.43 yen after lunch, a rally swept across the region.

Market sentiment also got a boost from a rise in US stock futures in Asian trades, fuelling hopes of a rebound on Wall Street. The Dow Jones Industrial Average plunged by 213 points on Monday.

Other Asian bourses saw similar trading patterns. Hong Kong’s Hang Seng Index closed 311 points higher at 27,771 after losing 1,056 points in the morning, while Tokyo’s Nikkei 225 Index rose 169 points to 15,211.52, recovering from a morning loss of 114 points.

Among the biggest gainers in Singapore were badly battered bank stocks and China plays. DBS Group Holdings closed 20 cents higher at $19.60 after plunging to a four-month low of $18.80, while United Overseas Bank rose 40 cents to $19.60.

China plays mostly ended on the upside, led by gains in giant shipbuilders Cosco Corp, which rose five cents to $6.45, and Yangzijiang, which went up three cents to $2.09.

While the rebound brought cheers to traders glum at recent mounting losses, some felt the rebound was too good to be true.

CIMB-GK research head Song Seng Wun said: ‘The market has been sold so hard and for so long that it doesn’t take much effort to get a rebound. But can this last?’

Many traders now fear yesterday’s rebound may turn out to be a ‘dead cat bounce’ – a small recovery like last Wednesday’s one-day rebound.

Many also worry that foreign funds may have used the rebound as an excellent opportunity to get rid of their investments in the region.

A Citigroup report showed that as turmoil engulfed regional markets last week, about US$5.6 billion (S$8.1 billion) of stocks were sold off by foreign investors. Among the worst-hit markets was China, with US$1.1 billion worth of shares offloaded by foreigners.

Other hard-hit markets included Hong Kong, where US$191.1 million worth of shares were sold by funds investing only in Asian stocks, and Singapore, with US$51 million worth of shares offloaded.

UNITED States stocks rose yesterday, rebounding from three-month lows, after a gain in the price of oil boosted energy companies and Credit Suisse Group said shares of Google may reach US$900 next year.

ExxonMobil and Chevron both climbed the most in three months.

Google rallied after Credit Suisse said the most-popular search engine will expand its share of the mobile advertising market.

Benchmark indexes gained even after Freddie Mac, the second-largest source of money for US home loans, said it may cut its dividend and reported a US$2 billion (S$2.9 billion) loss – three times what some analysts had estimated.

The Dow Jones Industrial Average rose 125.27 points, or 1 per cent, to 13,083.71 after two hours of trading. The Nasdaq Composite Index increased 40.24 points, or 1.6 per cent, to 2,633.62.

Crude oil rose for a third day after the US dollar touched a new record low against the euro. The greenback’s 11 per cent slide this year has made oil, metals and other commodities denominated in the US currency cheaper for foreign investors.

 

Source: BLOOMBERG NEWS (The Straits Times 21 Nov 07)

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