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TAKING STOCK: Regional markets make hasty retreat as Fed cut disappoints

REGIONAL investors were as disappointed yesterday as their United States counterparts over the size of the latest US interest rate cut.

Bourses in Asia fell across the board following an overnight tumble on Wall Street, where key benchmarks fell over 2 per cent.

Investors were unhappy that the Federal Reserve trimmed interest rates only by a quarter point. Some were pinning their hopes on a bolder half-point cut.

This, coupled with a lack of direction from the Fed’s statement, failed to inspire much confidence in Asian markets. Fears of a possible US recession left investors with little reason to cheer.

Taking their cue from Wall Street, most Asian bourses sank into the red and never saw the light of day. Hong Kong’s Hang Seng Index led the region’s fall with a 2.41 per cent decline. Only South Korea’s Kospi Index closed in positive territory.

Joining the sea of red was the local benchmark, the Straits Times Index (STI). Panic sparked a sell-off right after the opening bell, wiping all of Tuesday gains.

The index slumped 79.3 points within a minute, in what a dealer described as ‘an overreaction and irrational move’.

‘It’s still better to have somewhat of a cut than none at all,’ said the dealer. ‘The Fed made a mistake by not sending out any signals if it was open to more rate cuts, so now the market’s fumbling to find its feet.’

Bargain-hunting in the afternoon saw the STI recover slightly before some profit-taking towards the end of the trading day. It closed 1.11 per cent lower at 3,549.25.

Westcomb Securities head of research Goh Mou Lih said: ‘The sell-off was more of an immediate reaction to Wall Street and within expectations.’

The magnitude of the sell-off could have been much larger if the local market had priced in expectations of a bigger cut to the extent that Wall Street did, he added.

Banking stocks, touted to be the main beneficiaries of a US rate cut, took a beating.

DBS Group Holdings lost 30 cents to $21.40, while United Overseas Bank fell 40 cents to $20.10.

Electronics maker Venture Corp slipped on concerns of a slumping US economy. Singapore Airlines also fell after crude oil prices climbed, while SingTel and SembCorp Industries remained unscathed.

Short-term overhang pressure among second-liners and small caps could also manifest in the coming one to two sessions, according to a DBS Vickers report.

Assuming there will be no major bombshells, Mr Goh expects the market to recover.

‘There shouldn’t be any more substantial drops in the stock market,’ he said, adding that he expected a fourth straight rate cut at the Fed’s meeting next month.

Expect volatility to linger on, however, especially with the low trading volume, say analysts. Overall turnover remained a thin 1.45 billion units worth $1.73 billion.

 

Source: The Straits Times 13 Dec 07

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