Apr 20, 2015

    Investors buckle up for bumpy ride

    THE Singapore bourse may get off to a bumpy start this week, as investors batten down the hatches amid negative developments on the external front.

    In China, regulators have moved to curb speculative trading following a sharp run-up in equities, sending its stock-index futures plunging.

    That, along with worries that Greece may run out of money as debt repayments loom, sparked a sell-off on Wall Street and in Europe last Friday. The Dow Jones Industrial Average slumped 1.3 per cent, while the Stoxx Europe 600 Index lost 1.8 per cent.

    The FTSE China A50 Index Futures tumbled 6 per cent and the Hang Seng China Enterprises Index lost 3.3 per cent after regulators banned the use of shadow financing for equity purchases and increased the supply of shares available for short sellers.

    All this could mean more volatility for local shares this week, especially Singapore-listed Chinese firms, or S-chips, which have been enjoying a revival on the back of the North Asian market rally.

    But CMC Markets analyst Nicholas Teo remains upbeat.

    "There could be regional rotational play this week if fund managers in Asia are worried about what is happening in China and the United States; take profits there and re-invest those funds in Singapore, which is much cheaper.

    "There could be a short-term flight to safety here, by virtue of our underperformance and more stable investment environment," he said.

    The benchmark Straits Times Index ended last week up 1.5 per cent at 3,525.19, fuelled largely by robust penny play, particularly among S-chips.

    This comes after China regulators began late last month to allow domestic mutual funds to buy and sell shares between Shanghai and Hong Kong, in an effort to boost volumes on the Shanghai-Hong Kong Stock Connect.

    But on Friday, they banned the use of umbrella trusts, which allow for more leverage than brokerage financing, for margin trading; issued rules that would make it easier for investors to short, or bet against, stocks; and allowed fund managers to lend shares to short sellers.

    People who sell short hope to profit by repurchasing the securities later at a lower price and returning them to the holder.

    Meanwhile, in Singapore, the focus is still on corporate earnings, with the Singapore Exchange's (SGX's) third-quarter earnings due to be released on Wednesday. These are expected to be better, partly because of robust derivatives volumes. The average daily trading volume in derivatives grew 46.2 per cent year-on-year last month to 678,126 contracts, thanks to the FTSE China A50 Index Futures.

    Of particular interest is whether SGX will use the results announcement to shed light on current chief executive Magnus Bocker's successor.

    "There are capable local people, but they may not have the experience working in large international exchanges, or to take initiatives that can put SGX on the global map as a stock exchange of note," private investor Mano Sabnani said.

    Candidates touted by the industry include former SGX director Loh Boon Chye; its former president, Gan Seow Ann, and Chew Sutat, now its executive vice-president.

    Mr Loh, who joined Bank of America Merrill Lynch as deputy president of Asia-Pacific and head of Asia-Pacific global markets in 2012, is leaving the bank. Mr Gan is vice-chairman of UBS Wealth Management's South-east Asia and Asia-Pacific hub.

    The market will also be eyeing Singapore's industrial production numbers for last month - due for release on Friday - for signs of consistency in economic recovery, following better-than-expected non-oil domestic exports last month.