Sky-high US stocks giving investors vertigo
WHENEVER there is a big run-up in stock prices in one year, one should be prepared for a nasty hangover the following year.
Recent history is replete with such examples.
These include the big blow-up in dot.com counters in 2000, after the huge run-up leading to the new millennium, and the global stock-market crash in 2008, which followed a bull run that was fuelled by an unsustainable real-estate boom in the United States and Europe.
So despite all the rosy predictions made by analysts about this year's outlook for US stocks, Wall Street is suddenly filled with trepidation after enjoying the biggest run-up in the stock market since the global financial crisis six years ago.
The lousy set of job data for last month - released on Friday - showed that the US added 74,000 jobs to its non-farm payrolls, which only served to fuel the anxiety. The figure was far lower than the estimated 197,000 jobs economists had predicted.
The dour job data cast a deep shadow over the robustness of the US economic recovery and doubts over whether the US central bank can stick to its plan to exit its vast bond-buying programme by the end of the year.
Even before the job data came out, fund managers and well-heeled investors had been quietly shoving their money back into bonds, which had until recently been a much unloved asset because of the fear that interest rates might go up.
Data furnished by Citi Investment Research showed that they poured a net US$5.3 billion (S$6.7 billion) into bond funds in the week ended on Wednesday. This marked the first time in five weeks that bond funds had shown an inflow of monies.
They also took out about US$2.5 billion from funds that invest in US equities. This is a marked contrast to the bullish attitude they adopted towards US stocks last year, ploughing an eye-popping US$118 billion into the US market.
But institutional investors continued to pour money elsewhere - US$1.7 billion into Japanese funds and US$908 million into European funds - for the week.
Now, it would be good if some of the money they have taken out of the US market comes to the rest of Asia as well.
But, so far, this does not appear to be the case.
China appears to continue to hold some interest, with a net US$331 million moving into Chinese equity funds.
Otherwise, foreigners remain net sellers in Asia. The saving grace is that the selling is tapering off, with only a net US$66-million outflow last week. But the small quantum of the sell-off also suggests that there is little interest in regional equities.
It would explain why, on the local bourse, penny stocks made it to the list of top performers as well as its most actively traded counters.
Every day since the year started, the bulk of the 20 most popular stocks traded are priced below 20 cents, and include names like HanKore and Albedo.
This is despite the horrendous bloodletting in October, when some prominent penny stocks suddenly collapsed in value, leaving many traders who failed to get out in time badly bruised.
Will the revival in penny stocks continue? It is hard to say, as the trading is driven completely by sentiment, rather than sound business fundamentals.
To have a sustainable market rally, investor interest in blue chips is necessary. But, so far, that is lacking.
This must be the biggest worry for traders as they hope anxiously for the traditional Chinese New Year rally to get under way.