Feb 03, 2014

    Stocks unlikely to gallop into Horse year

    THE No. 1 question on investors' minds now is whether there will be a hongbao rally following the recent rout.

    But even as they have been indulging in festivities to celebrate the lunar year of the Horse, they may not find regional shares striding out of their current slide when the market opens today.

    "It's clear that Asian stocks are unlikely to be galloping into the Year of the Horse," said IG Markets strategist Kelly Teoh.

    A host of factors have combined in recent weeks to send bourses heading south.

    These include the United States Federal Reserve's further trimming of its monetary stimulus, the re-emerging crisis in emerging-market currencies, and a slowdown in China manufacturing.

    Mr Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors, said: "With shares no longer dirt cheap, returns are likely to be a bit more constrained and volatile, and the current correction could go a bit further until investor confidence readings fall back a bit more."

    The jitters that Asian investors feel currently would not have been calmed by Wall Street's 0.9 per cent slide on Friday, which capped a torrid month for US stocks.

    That further dip meant that the Dow Jones Industrial Average dropped a total of 1.14 per cent for the week, with the much-watched S&P 500 index declining 0.4 per cent.

    The week's losses also ensured that January was a month to forget for US stocks, with the Dow sinking 5.3 per cent - its largest percentage decline since 2009. The S&P 500 also fell into the red, dropping 3.3 per cent for its worst January since 2010.

    Back home, the benchmark Straits Times Index (STI) slipped another 1.6 per cent for the week, having tumbled 2.3 per cent in the previous. The bellwether indicator is hovering just above the key psychological 3,000-point mark at 3,027.22.

    The STI was not alone - its key regional peers also lost ground - with Japan's Nikkei 225 index falling 3.1 per cent to cap its largest monthly decline since May 2012, and Hong Kong's Hang Seng Index dropping 1.9 per cent.

    Many market experts had warned of a correction at some point, given the good gains last year.

    The key question now is whether the current pullback is due to an overvalued market or the emergence of deeper global economic woes.

    Mr Anthony Conroy, head of global trading at Bank of New York Convergex, told AFP that investors' worries include mixed earnings and the precipitous drop in emerging-market economies.

    Still, most analysts believe that investors should remain in equities.

    Mr Oliver is among the group who tips stocks to rise this year, buoyed by "reasonable valuations, improving earnings on the back of the global economic recovery, and easy monetary conditions helping to entice investors to switch out of cash and bonds and into shares".

    This week, the market's key focus will be on Friday's US payrolls report, which is expected to show a recovery from December's weather-affected gain of just 74,000 jobs.

    Other keenly monitored data include one on manufacturing conditions out today and another on services sentiment out on Wednesday.