Jun 30, 2014

    Eerie calm in bourse spooks the market

    AS THE year heads to the half-year mark, the biggest worry for traders must be the uneasy lull that has descended upon the market.

    Last week, the trading volume on Tuesday fell below levels encountered during the half-day trading sessions on New Year's Eve and Chinese New Year Eve.

    Market pundits blame the lacklustre stock market on the World Cup in Brazil. But the total market turnover between January and now is about 35 per cent lower than in the same period last year.

    This suggests that even before punters' interest was diverted to the World Cup, they were scaling back on their bets in the stock market.

    And related to that quietness is an equally eerie calm in the market. In recent weeks, the benchmark Straits Times Index gyrated within a tight range near the 3,300 level. Since January, it is up only 3.27 per cent.

    Elsewhere, the same eerie calm has been seen. For the year so far, Hong Kong is flat, while Shanghai is down 3.76 per cent. And despite excitement over Wall Street setting record high levels in recent weeks, the Dow Jones Industrial Average is only 1.6 per cent up for the year.

    For some traders, the lack of price volatility is a concern as it is a reflection of investor complacency about the risks they may be taking on their investments.

    One market indicator - the Vix Index, which tracks the volatility of the component stocks of Wall Street's S&P 500 Index - has also fallen to near historic low levels last seen during the later years of the Clinton administration nearly two decades ago.

    With another Democrat - Barack Obama - now in his last leg in the White House, the superficial resemblance between then and now sparks concern too.

    Then there is the huge run-up in the international bond market that defies belief. This year, even heavily indebted European countries such as Spain have been able to issue debts at near-historic-low interest rates, despite high unemployment and deflation fears dogging their heels. It is a big contrast from two years ago, when they had to dangle an attractive interest payout to entice investors to subscribe to their bonds.

    The commodities market has surprised as well. Agricultural commodities soared in price before falling back, while gold climbed by as much as 12 per cent between January and March, before falling about 10 per cent in the next three months. It then staged a rebound as unrest in Iraq triggered a flight into defensive assets by some investors.

    But some market strategists believe that while share prices remain vulnerable to a correction, the broad trend is likely to remain up.

    Shane Oliver, AMP's head of investment strategy, said: "Share-market fundamentals remain favourable with reasonable valuations, global earnings improving on the back of rising economic growth and monetary conditions set to remain easy for some time."

    Still, beneath the calm in the market, some STI component stocks have been able to make huge strides in price.

    These included Olam International, which rose about 61 per cent following a takeover spearheaded by Temasek Holdings, and Noble Group, which gained 28.6 per cent, buoyed by news that it was selling a 51 per cent stake in its agricultural business to China's Cofco.

    Motor distributor Jardine Cycle & Carriage jumped 20.9 per cent, as it got a positive re-rating from investors following the 13.3 per cent gain in the Indonesian stock market where its unit, Astra International, is listed.

    In the past six months, however, one significant loser has been Genting Singapore, falling 8.8 per cent.

    One concern flagged by credit-ratings agency Fitch is whether the casino operator's resources will be strained if it has to simultaneously finance the construction of an integrated resort in Jeju, South Korea, and other large projects in countries such as Japan if casinos there get the go-ahead.

    Fitch, however, qualified its observation by noting that Genting "has a history of pursuing expansion prudently".