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Top Stories for Front Page – Market sticks to singing the US sub-prime blues

STI loses 115 points for the week reinforced by rising oil price and weak US$

LOCAL stock market investors must by now have grown tired of hearing about the US sub-prime mortgage market, collateralised debt obligations (CDOs) and what the US Federal Reserve might or might not do on interest rates.

Unfortunately, like it or not, these have been the main drivers of stock prices for the past month and were again the prime determinants of direction this week.

There was, however, another fluctuating variable to contend with – rising oil price, which this week came within a hair’s breadth of crossing US$100 per barrel for the first time in history.

Combine all of the above with a sliding US dollar – which makes it less likely that the Fed will cut interest rates – and a downward revision by the Fed for its 2008 economic growth forecast and the ‘buy stocks’ story clearly lacks a certain gloss that it used to have.

As a result, the Straits Times Index came under heavy pressure throughout the week, always appearing more likely to fall at any one time than rise.

Despite a short-covering bounce of 13.01 points yesterday to 3,325.89, the index for the week lost 115 points or 3.3 per cent.

Traders have been deserting stocks in large numbers, leaving house traders and proprietary desks to provide most of the daily volume. Yesterday’s session was one of the quietest in recent months with turnover of 1.4 billion units worth $1.53 billion, down from Thursday’s $2 billion.

Wall Street’s Thursday closure for Thanksgiving robbed the market of some direction, resulting in prices trading within narrow bands. As a result, warrants turnover was also down to 565 million units worth $146 million compared with $220 million on Thursday.

Shipping/shipyard stocks have been among the worst hit and volatile, although the same counters were the market’s best performers in October.

STX Pan Ocean, for example, yesterday plunged to $2.60 before recovering to close a nett 3 cents firmer at $2.91, while Cosco Corp, which only a few weeks ago traded above $8, closed yesterday at $5.90.

The fall in blue chips in the meantime has been led by the banks, Singapore Exchange and SingTel. Interest in penny stocks has dwindled, replaced by punting of structured warrants while new listings over the past two weeks have mainly failed to perform.

In assessing the current situation, AMP Capital Investors said ‘while the correction in shares may still have a bit more to run, it is likely we will soon get a decent rebound on the back of improved valuations, pessimism having reached an extreme, the prospect for further Fed rate cuts and positive seasonal conditions around year end’.

AMP added that ‘US economic data was weak and while the minutes from the Fed’s October meeting indicated that its last interest rate cut was a close call, the huge asset writedowns at US banks and the renewed deterioration in credit markets this month mean that the Fed will be forced to cut rates again, with the next move likely to be next month’.

The US Federal Reserve next meets on Dec 11 and investors are hoping for another interest rate cut.


Source: Business Times 24 Nov 07


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