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TAKING STOCK: Asian markets slide on Wall Street’s poor showing

Blue chips lead the drop as ST Index closes 2.5% lower on worries over American economy

TRADERS knew it was coming after the Friday night fright on Wall Street, but it did not make yesterday’s bloodletting any less painful.

The Dow Jones Industrial Average’s 256-point retreat, sparked by worrying jobs figures, suggested that the theoretical United States recession was looking more realistic by the day.

After stewing over it during the weekend, regional traders rushed for the exits from the opening bell yesterday, with bourses from Singapore to Australia and Taiwan bleeding red.

Australian shares dipped 2.3 per cent, Japan’s Nikkei 225 plunged 1.3 per cent and Taiwan’s market fell 4.1 per cent.

The Straits Times Index (STI) dived 84.73 points, or 2.5 per cent, to 3,353.06 but was spared a worse fate by Hong Kong’s post-lunch recovery and bright stock futures in the US.

Hong Kong’s Hang Seng Index lost more than 800 points in early trading before staging a property-led recovery to close at 27,179.49, down a relatively light 1.2 per cent, or 340.2 points.

Yesterday’s sharp reversal still means that the STI, while spared further misery, has so far slid 3.7 per cent since the start of the year. It was also the index’s lowest close since Nov 23 last year.

‘It was mainly a knee-jerk reaction to Wall Street’s plunge,’ DMG & Partners Securities head of research (retail) Terence Wong said. ‘The fall here was not surprising, given renewed fears over the US sub-prime issue and consumer confidence.’

SingTel shares fell 14 cents to $3.76, accounting for a 14.6-point fall in the index on their own.

Bank stocks fared no better. United Overseas Bank plunged 58 cents to $19.08, the day’s second-top loser in absolute terms. DBS Group Holdings dropped 24 cents to $20.24, while OCBC Bank shed 12 cents to $8.19.

Property plays also tumbled. City Developments retreated 54 cents to $13 to be among the day’s top losers, while Keppel Land dropped 13 cents to $7.05.

Citigroup analyst Wendy Koh said the main risk facing the property market is ‘a severe deterioration in the sub-prime fallout’.

Citigroup kept its positive stance on the local residential property market, expecting rental rates to continue to rise rapidly at 20 per cent to 25 per cent. However, it is less optimistic on the office sector.

Other blue chips that took a hit included Singapore Exchange, off 48 cents at $12.30, and Singapore Airlines, down 44 cents to $16.52.

Commodity and property investment company Straits Trading lifted its trading halt around 4.15pm and saw its shares shoot up by 68 cents, or 13.7 per cent, to $5.64 in quick time.

This was a response to an announcement by investment firm Tecity group – founded by the late Dr Tan Chin Tuan – of an offer to buy Straits Trading for $5.70 a share.

There was also joy for palm oil plays due to a bullish outlook for the sector and high commodity prices.

Indonesian palm oil producer First Resources rose 10 cents to $1.60, while Golden Agri-Resources was up three cents at $2.37.

Penny stocks emerged relatively unscathed compared to counters on the main index.

The UOB Catalist Index, which tracks such stocks, lost just 1.86 points, or 0.9 per cent, to 208.60.

The falls in global markets could be a blessing in disguise for investors. Experts say these may trigger a 50-basis point interest rate cut by the US Federal Reserve later this month in order to avert a US recession.

That should give a substantial lift to markets so investors can capitalise on the recent falls to pick up bargains.

Meanwhile, analysts warn of continued volatility on the STI.

DBS Group Research sees the STI heading down to 3,000 points by the end of the first quarter.

It noted recently: ‘Stay cautious and be very selective in the near-term. In general, we recommend a sell into bounce and will adopt a trading stance on selective thematic play.’

But not all shared the sentiment.

AmFraser Securities senior vice-president of research Najeeb Jarhom said: ‘The STI is unlikely to plunge all the way to 3,000 points even if it breaks the key 3,300 psychological support level.

‘It should repeat its quick recovery in the event of another plunge below 3,300 as seen in mid-August last year.’

 

Source: The Straits Times 8 Jan 08

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