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Wild swing reflects fears of US slowdown

Business Times – 12 Mar 2008

SHORT-COVERING and a late afternoon rebound on Nasdaq futures saw the Singapore market’s benchmark index chalking a remarkable 80-point turnaround in intra-day trading, first plunging to a new 16-month low, then rebounding to close in positive territory. Also boosting the market are expectations that the Federal Reserve may intervene more aggressively to address the impact of the tightening credit crunch.

Nevertheless the wild gyration characterised investor nervousness amid intensifying fears of a US recession and concern that tightening money market conditions could trigger a third wave of the global credit crisis.

After initially opening at a low of 2,794.62 points, the Straits Times Index dribbled sideways for much of the morning session before a late afternoon recovery by index movers like Singapore Telecom, DBS Bank, CapitaLand, Singapore Exchange and OCBC helped the index climb to its late afternoon high at 2871.60 points. It closed at 2,860.85 points, for a net 24.26-point gain.

However, the day started with a jolt for property stocks after Kuwait Finance House pulled out of a $818.4 million deal to buy 97 of GuocoLand’s apartments in its Singapore Goodwood Residence. GuocoLand – controlled by Malaysian property tycoon Quek Leng Chan – plunged to a low at $3.64, before recovering to close with a net 13-cent loss at $3.70.

Although other leading property plays like City Developments, controlled by Mr Quek’s cousin Kwek Leng Beng, and CapitaLand recovered to end the session in positive territory, the pullout by the Kuwaiti bank is nevertheless seen as an ominous sign for the residential property market here. Analysts said the move raises fears that the property sector may be heading for a serious downturn after a sharp run-up which started in late 2006.

Meanwhile, the larger concern for many investors is not so much whether the US is already in a recession, but how long the slowdown will last. Last week, the US employment report showed the economy lost 63,000 jobs in February, bringing job losses in the first two months of 2008 to 85,000. And US consumer confidence fell sharply in March, according to the latest reading of the RBC Cash Index, which at 33.1, is the lowest reading since data tracking began in 2002.

Traders say that while many Singapore listed stocks have retraced to attractive valuation levels, fears of a potential major capitulation on Wall Street and concerns over the direction and sustainability of the Chinese market  and economy is keeping investors sidelined.

In an online research report yesterday, Kim Eng said the Singapore index had a 22 per cent downside from current levels.

‘Since 1964, the five major bear markets in Singapore lasted an average of two years,’ Kim Eng’s Kelive noted. ‘The shortest one ran for 14 months (Jun ’81 to Aug ’82) while the longest down cycle extended 3¼ years (Dec ’99 – Apr ’03), albeit Sars had extended the crisis by an additional 1½ years. Within bear trends, there can be sharp rebounds as seen during Oct ’81 – Jan ’82 (+26 per cent), Jan-Mar ’98 (+29 per cent) and Sept ’01 – Mar ’02 (+37 per cent). Assuming the current downturn lasts 14 months, the earliest that the market can expect to recover is end 2008.’

The research house sees DBS, UOB, CapitaLand, City Developments and SembCorp Industries as having the greatest downside risk among bluechips. Keppel Corp is the safest bet, it added.

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