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Falling stock volumes reflect bearish market

Many investors stay on sidelines despite STI’s rebound from last month’s drop

THE stock market’s recovery after the nasty pre-Chinese New Year selldown was nothing short of spectacular, but the headline numbers tell only half the story.

While the Straits Times Index (STI) has shot up 5.7 per cent, or 166 points, in the last fortnight, daily traded volumes have barely been registering a pulse.

Daily volume has fallen to just 1.69 billion shares worth $1.8 billion so far this month from January’s 1.95 billion shares worth $2.26 billion.

The fall from the same period a year ago is even more dramatic.

At the start of last year, foreign funds poured billions into the region, sending average daily volumes in the first quarter to 2.3 billion shares worth $2 billion. The STI responded by rocketing 8 per cent to cross 3,000 points for the first time.

As the bull run accelerated in the second quarter, daily average volumes hit 3.5 billion shares worth $2.2 billion, while the STI jumped a further 10 per cent.

On July 18, the bulls were beside themselves, with the overall market volume hitting a staggering 9.22 billion shares worth $4.4 billion – an all-time daily record.

The slide began in August, when sub-prime worries in the United States spooked global markets and sent many investors scurrying to the safety of the sidelines.

Trading levels have been reflecting the growing sense of investor unease.

Average daily volume fell to 3.1 billion shares worth $2.6 billion in the third quarter, and further to 2.26 billion shares worth $2.4 billion in the fourth quarter, with the slide continuing this year.

Nowhere is the pain of anaemic trading volumes felt more strongly than at the Singapore Exchange (SGX), which relies on clearing trades for the bulk of its income.

Its shares over the past 12 months tell a similar story of a slowing market.

SGX’s share price climbed from $5.95 on Jan 3 last year to a record high of $16.40 on Oct 8, before falling to as low as $8.70 on Jan 22.

While trading on the broad market has fallen sharply, however, blue chips continue to be traded actively, with their share prices moving in tandem with other blue-chip stocks in the rest of Asia.

This suggests that hedge funds – which deploy sophisticated investment strategies – are actively trading in and out of their portfolios as they react to day-to-day developments in the US.

That gives most other global investors little reason to cheer, and the speed of the market’s deterioration is causing much concern, said Citigroup’s chief Asian equities strategist, Mr Markus Rosgen.

The problem is that while shell-shocked investors are no longer complacent, their stock portfolios might still be filled with counters, such as banks and real estate, which prosper only in a bull market.

‘This will prove the undoing of many an investor,’ said Mr Rosgen.

Still, one dealer noted that recent trading patterns indicate that retail investors are turning out to be a savvy bunch and have avoided taking fresh positions in penny stocks.

The UOB Catalist Index – which tracks penny stocks – has fallen by 28 per cent since last October. But daily traded volumes in its shares plunged even more steeply – from an average 402.9 million shares then to only 110 million shares now.

Some experts believe that the market may undergo another round of selling before reaching a ‘bottom’, presenting investors with a good buying opportunity.

‘Between now and then, patience is what is required, and the winner is the one who loses least,’ said Mr Rosgen.


Source: The Straits Times 20 Feb 08

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