Jan 06, 2014

    Bad omen? Hope yet for S'pore bourse

    TTHERE are traders who set great store by the old stock-market adage: As goes January, so goes the year.

    This being so, it gave them no joy to find the benchmark Straits Times Index (STI) falling 43.18 points, or 1.36 per cent, on Friday - the second trading day of the new year. That one-day drop caused the STI to end the week 0.57 per cent down at 3,131.47.

    So what does the STI's drop portend? Does it mean there is a good chance the STI may end the year in the red?

    Just for the sake of argument, let's take a look at how the STI's closure for the year corresponded with its first week's performance in the past decade.

    Sure enough, if the STI had started the year with a flourish, there was a strong likelihood that it would end the year on a high note.

    Thus in 2007, when a tidal wave of foreign money swept across Asia in the first week of January, regional markets went on to experience record high levels that year, even though it was marred by the onset of the subprime crisis in the United States.

    The converse is also true.

    At the start of trading in 2008, the STI was badly mauled by a huge fall in stock prices, as the region was spooked by a sell-off on Wall Street, following massive write-downs by US banks.

    The STI ended that year with its biggest drop in percentage terms in nearly a decade, as the global financial system nearly collapsed because of US investment bank Lehman Brothers' demise.

    Even last year proved to be no exception. The STI had started 2013 with a 1.8 per cent gain in the first week of trading.

    However, it sank into the red in the final few weeks of the year following the Fed's decision to scale back its massive money-printing programme, which had been responsible for the surge in asset prices.

    But it still managed to end the year ahead - up 0.01 per cent - as blue chips got a belated dressing up early last week as 2013 drew to a close.

    Still, if it is any consolation, the scale of Friday's drop is nowhere near the stomach-churning plunges experienced by the STI in early 2008, the last time when the first trading week of January had been hobbled by losses.

    But the loss may be a harbinger of things to come - that despite the bullishness displayed by analysts as they projected a better outlook for this year, it may be difficult for blue chips to experience a big bull run similar to what was experienced in 2007 or 2009.

    After all, it would be difficult for Wall Street to replicate its record-busting performance last year, and its more subdued behaviour going forward is likely to have a chastening effect on the rest of the world's bourses as well.

    Then there is the perennial concern over China's mighty industrial sector where the slip in both the purchasing managers indexes for the manufacturing and service sectors last month was a big contributing factor in Friday's regionwide sell-off.

    Given the important role which China now plays as a major player of the commodities produced by South-east Asia and Australia, its every move is likely to be scrutinised very carefully by traders.

    But data from Citi Investment Research showed that foreigners are still bullish on Asia.

    In the week to Wednesday, they pumped a net US$711 million (S$900 million) into buying Asian equities, especially those from Taiwan and India.

    This was despite a net outflow of US$873 million during the period from funds which invested in emerging-market equities.

    Going by the investors' healthy appetite for Asian equities, it is clear that they are not giving the region a miss. That is a good sign.