Jun 23, 2014

    Regional bourses part ways with Wall Street

    IF THERE is one trend worth highlighting, it is the decoupling of the region's stock markets from Wall Street.

    Last week saw yet more records for the widely watched S&P 500 Index on Wall Street after US central bank chief Janet Yellen delivered a reassuring message for investors, forecasting strong growth for the US economy and no change in the Fed's dovish outlook on inflation.

    But in Singapore, the benchmark Straits Times Index was down 1.05 per cent for the week while, in Hong Kong, the Hang Seng fell 0.54 per cent. Shanghai fared even worse, registering a 2.13 per cent drop.

    Plenty of reasons have been suggested for the regional market malaise. These include the football World Cup which is luring punters to wage bets on their favourite teams, and concerns over the fighting in Iraq between government forces and Islamic militants for control of the country's biggest oil refinery.

    There is another anomaly worth flagging. Despite the lacklustre performance put up by regional bourses, foreign investors' appetite for their stocks has picked up recently.

    Citi Investment Research's latest fund-flow report shows that, last week, funds investing in Taiwanese equities attracted an inflow of US$983 million (S$1.2 billion), while a net US$604 million flowed into Indian funds. Indonesia also saw US$191 million of net purchase.

    Asia funds also enjoyed an inflow of US$921 million, with the bulk of the money going into China and Taiwan exchange-traded funds.

    Still, the investors' actions may not come as a surprise, as they may find that Asian markets offer better value, after the extended stock run-ups in Europe and the United States.

    On Wall Street, stocks have rallied hard for the past five years, as the S&P 500 closes in on the landmark of 2,000 since hitting a trough of 666 in March 2009.

    In Europe, stock prices have almost doubled in the past two years, as investors shake off the post-euro zone crisis blues.

    But one question on traders' minds is whether foreign investors' interest in Asian equities is getting ignited, just as Wall Street moves into a final bubble, luring in players who have so far been sitting on the sidelines, before it crashes.

    Yet, there does not appear to be any reason for Wall Street to plunge, for now.

    Even though the Fed will be scaling back its bond purchases by another US$10 billion a month after its rates-fixing meeting last week, the world's financial markets are still awash with liquidity, with yield-hungry investors looking for high-yielding assets to park their cash.

    This explains why the crises that have erupted this year - the conflict in Ukraine and the insurrection in Iraq - are failing to rattle investors' confidence.

    On the local front, while blue chips trade within a tight price range, penny stocks have staged a revival which reminded some traders of the huge explosion in trading of penny stocks during the previous World Cup four years ago.

    But the bulk of the trading could have been due to house traders betting on the penny stocks themselves, since there are hardly any fundamentals to support the counters in play.

    Perhaps that is just as well, since penny stocks give remisiers something to talk about, other than football matches.