Apr 07, 2014

    Sun sets on US but rises in Asia

    THERE are plenty of issues - both domestic and international - to keep investors glued to their trading screens this week.

    On Wall Street, the S&P 500 Index finished 1.3 per cent down on Friday, despite a generally well-received job report which showed that the United States economy had added 192,000 jobs last month - in line with economists' expectations.

    What is more ominous was the steep sell-off in US technology counters, with the Nasdaq Composite Index tumbling 2.6 per cent as household names such as social media giant Facebook and online retailer Amazon were pummelled.

    In contrast, unloved emerging markets appear to be making a comeback.

    Citi Investment Research noted that there was a net inflow of US$2.5 billion (S$3.1 billion) into emerging-market funds last week - the first time in 23 weeks a net inflow was recorded into such funds.

    In particular, it observed that foreign buyers are back in Asia, snapping up US$1.1 billion of Taiwan equities and US$1.3 billion of Korea stocks.

    It helped to spark a stock rally across Asia last week. For the week, the benchmark Straits Times Index (STI) gained 1.28 per cent while the Hang Seng rose 2.01 per cent and the Shanghai Composite was up 0.84 per cent.

    So just based on stock market movements and fund flows last week, a trader may be justified in concluding that international investors are switching out of the US market, where indexes such as the S&P 500 are flirting with record high levels, into Asia where markets had been whiplashed last year by rising US interest-rate fears.

    Even newspapers appeared to have jumped onto the bandwagon promoting Asian equities. Britain's Financial Times, for example, noted that if there is a consensus contrarian bet, it is China stocks.

    "China stockpicking comes with caveats, such as assuming the whole country is not about to collapse under a mountain of bad debts. But such consensus predictions of widespread disaster rarely work out as forecast. As in the euro zone before 2012, outsiders can underestimate the political will to do what it takes to avert disasters," it added.

    But even as foreign investors head back to Asia, the big question among local traders is whether the buying interest will spread beyond blue chips to energise the rest of the market.

    Despite the STI's upswing, trading activities have not picked up. In fact, for the month of March, turnover fell 25 per cent to $23.9 billion from a year earlier.

    Dealers blame the decline in appetite for penny stocks for the big slowdown in stock trading activities.

    Last week, the sentiment in the penny-stock market was further soured by news that white-collar crime buster Commercial Affairs Department (CAD) had launched a huge investigation hitting at least seven companies and 11 individuals as part of a wider probe into suspected trading irregularities on the stock trio - Asiasons Capital, Blumont Group and LionGold Corp.

    The market was treated to a spate of trading halts by firms affected by the probe, as they disclosed CAD's requests for access to relevant data and documents on their top management staff and subsidiaries.

    The action by CAD had come six months after the Monetary Authority of Singapore and Singapore Exchange said they were conducting an extensive review into the trio after they inexplicably tumbled in price, wiping out over $8 billion of their market value in a few days.

    Even brokers were ensnared by the CAD probe. There was talk that the CAD had visited several broking houses and hauled up some dealers for questioning.

    One trader said: "It sounded like a scene out of the 1980s movie Wall Street. But the CAD talk strikes fear among dealers and undermines market confidence."