Buckle up as Sept comes around

NO BUZZ: Dr Yellen, US Federal Reserve chief, speaking with Mr Draghi, president of the European Central Bank, during the Jackson Hole meeting on Friday.


    Aug 25, 2014

    Buckle up as Sept comes around

    THERE are few catalysts to perk up trading as this month's trading enters its final week.

    Even the much anticipated annual gathering of central bankers at Jackson Hole in the United States failed to generate any excitement for investors, as they shrugged at the speeches made by Federal Reserve chief Janet Yellen and European Central Bank president Mario Draghi.

    But given the chequered record of September as a period for stock market corrections in recent years, traders are already anticipating another bout of market volatility.

    This is in view of the uncertainties over US interest rates, which may stir up turmoil in the market as the Fed winds up its bond-buying programme in October.

    In her first appearance at Jackson Hole as US Fed chief, Dr Yellen gave nothing away as to where US interest rates might be headed after staying at near-zero levels for the past five years.

    She had noted that the US economy was getting closer to the Fed's goal of full employment and stable inflation, but balanced the comment with an observation that the decline in US unemployment rate overstated the improvement in overall labour market conditions.

    Her recalcitrance was a big contrast to that of her predecessor, Ben Bernanke, who used the 2012 Jackson Hole meeting to flag his willingness to do more to revive the US economy.

    This had culminated in the Fed launching a massive US$85 billion (S$106 billion) bond-buying programme, which was credited for prolonging the bull run in stock prices as it flooded the world's banking system with ultra-cheap funds.

    Still, even without a clear signal on interest rate direction, investors have been swarming back in the market to pick up fresh purchases.

    Citi Research noted that Asian funds attracted US$1.7 billion of inflows last week.

    About two-thirds of the money had flowed into tracker funds which track the Hong Kong and China market. However, the funds do not appear to be headed towards Singapore.

    In a separate report on the Singapore market, the US lender noted that concerns over the growth in Singapore-listed firms and interest rate movements have meant that stock prices are flat for now.

    It said: "Our view on the STI remains tight at 3,390, which implies a price-earnings ratio of 15.8 times."

    Last week, the STI ended 0.32 per cent higher at 3,325.5.

    Citi also observed that even though the STI had gained around 5 per cent so far this year, the local stock market had underperformed other regional bourses such as Bangkok's.

    It also noted that key segments of the Singapore economy had published weak trends in their businesses. These sectors included retail, tourism, advertisement spending and industrial production.

    "With Singapore's domestic drivers maturing, we prefer cyclical stocks exposed to external drivers. Our top buys include DBS, Hutchison Port Holdings Trust, Keppel Corp and Wilmar International," it added.

    However, in a report earlier this month, JPMorgan struck a more optimistic note, observing that traders can make money in a flat market because the Singapore stock market is essentially in a trading mode this year.

    Investors are likely to do well catching counters experiencing "quick and violent catch-up trades". It suggested trading in counters where the positive and negative news are known, and where the only issue is whether these developments are reflected in the stock price, it said.