Apr 28, 2014

    Traders on tenterhooks this week

    HEADLINES from the global front are likely to elbow aside the wave of news-grabbing privatisations that had shaped trading here in the past fortnight.

    Top of the list of events to look out for is the United States central bank's rates fixing meeting on Wednesday, where it is expected to trim its purchase of bonds by another US$10 billion (S$12.6 billion) to US$45 billion a month.

    Now, even though the Fed's move is largely expected, there is no telling how Wall Street may react, given the recent weakness experienced in giant technology counters, such as Facebook and Twitter, which had suffered sharp sell-offs last week.

    Then comes the eagerly awaited US jobs number on Friday which would give a good indication of the health of the US economy and future US Fed action. US economists are eyeing the creation of an additional 200,000 in the US last month, as its economy bounces off from a sluggish first quarter.

    But concerns over Ukraine may dampen trading sentiment, as tensions escalate over its giant neighbour, Russia, annexing Crimea - a peninsula abutting the Black Sea - and threatening it with military manoeuvres around its borders.

    Nearer home, traders are likely to cast an anxious eye over the official Chinese purchasing manager's index (PMI) data, due out on Wednesday.

    This followed the sell-off in mainland stocks last week, after the HSBC-Markit PMI data suggested that China's manufacturing sector had contracted for four straight months in March.

    Given the many concerns besetting the market, some traders wonder if the admonition about selling in May and going away will hold true again this year, as it had done for the past three years.

    However, market strategists - such as AMP Capital's Shane Oliver - believe that any dip in prices should be seen as a buying opportunity.

    In his latest report, he said: "While investors should allow for more volatility in share markets, including the likelihood of a significant correction around mid-year, the broad trend in shares is likely to remain up.

    "Share market fundamentals remain favourable with reasonable valuations, improving earnings on the back of rising economic growth and easy monetary conditions."

    The fund flow data also suggests that, after shunning emerging markets in recent months on rising interest rates concerns, global investors are nibbling regional stocks again.

    Citi Investment Research noted that, last week, foreign investors made a net US$1.8 billion purchase of Asian equities. These included purchases of about US$678 million of Korean stocks and US$407 million of Taiwan equities, as well as US$200 million worth of Indonesian and Thai counters.

    But, reflecting the fresh uncertainties over the outlook for the Chinese economy, the China and Greater China fund recorded over US$614 million in redemption.

    The weaker sentiment on Wall Street also saw an outflow of US$593 million from funds investing in US equities, Citi added.

    On the commodities front, gold enjoyed a small revival in interest, gaining US$13 to US$1,302 an ounce last week , buoyed by its status as a safe-haven asset when market sentiment turns sour.

    Meanwhile, crude oil jumped to a near two-month high of US$110 a barrel last week on potential supply-disruption concerns because of the Ukrainian crisis.

    Given the uncertain big picture, it behoves traders waging a bet on the next privatisation deal to be cautious. The smallish premiums which majority shareholders may offer over market prices to take the shares off their hands may not be worth the wager.