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Familiar strain of worry weighs heavy

SENIOR CORRESPONDENT

THE pattern of trading over the past month or so has been the same and yesterday was no different – shortcovering lifted the index temporarily in the morning before renewed weakness and shorting resumed soon afterward.

The cue for short-covering is usually either an overnight rebound on Wall Street, or a rise in the US futures market, or a rise in Hong Kong, or all of the above. This was very much the case yesterday, when the Straits Times Index (STI) responded to Monday’s rebound on Wall Street with a 35-point bounce in the morning that soon petered out once Hong Kong went into steep decline – the Hang Seng eventually closed 2.4 per cent down – and the March futures on the Dow Jones Industrial Average dropped 60 points.

The question on everyone’s mind is: where might the bottom lie? Tuesday’s report focused on where support for the STI might be following the ease with which the 3,300-mark was lost. The 3,179-mark was suggested as a possibility but after yesterday’s 63.56-point plunge to 3,154.58, few in the market might want to venture any new estimates, at least not yet.

All sectors were hit, led by the banks – losses in DBS, UOB and OCBC cut 23 points off, while a 76-cent crash in the Singapore Exchange’s share price to $10 cut 12 points off. The largest absolute fall within the index was suffered by Jardine Cycle & Carriage, which lost $1.18 to $20.96 with 458,000 shares traded.

With the meltdown in the index, the broad market stood little chance – excluding warrants, there were only 105 rises versus 421 falls.

The STI has now lost 328 points, or 9.4 per cent, since the start of 2008, while Hong Kong is down 7.1 per cent and Japan 8.7 per cent. The source of the selling has been the same for months now – worries over the extent of US sub-prime losses and their impact on Wall Street.

Structured warrants on the Hang Seng Index and STI featured prominently in the top volume and gainers lists. Among the more noticeable falls were Yangzijiang Shipbuilding, Cosco Corp and STX Pan Ocean, all of which came with high volume.

In an Asia-Pacific Strategy report released yesterday, Morgan Stanley (MS) said that its key themes for 2008 are a US-led G7 downturn, domestic Asian resilience, policy divergences, structural fund inflows into Asia, a pro-business political shift and a food shock. On the subject of Asian resilience, it said that low rates, easy financing and the absence of major imbalances lead it to overweight banks, property, telecoms, consumer and infrastructure. It remains overweight on Hong Kong, China, Singapore and Malaysia.

Merrill Lynch released a Pacific Rim report dated Jan 9 entitled ‘Headwinds in the Year of the Rat’, in which it said that US growth outlook has visibly deteriorated and that credit spreads and stockmarket volatility are expected to remain high. ‘These trends represent clear headwinds for the Pacific Rim; however, we see offsetting sources of strength . . . growth momentum remains high, macro policy remains supportive and inflation risks – although rising – appear manageable.’ Merrill Lynch said that it expects equity market returns to be ‘more differentiated’ compared with 2007 and prefers Asean markets such as Singapore, Indonesia, Malaysia and the Philippines.

 

Source: Business Times 16 Jan 08

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