Traders to tread lightly in Sept

'KNOWN UNKNOWN': Investors worry that the West may be drawn deeper into the Ukraine crisis as Nato confirmed that Russian troops were involved.


    Sep 01, 2014

    Traders to tread lightly in Sept

    SEPTEMBER is viewed by some traders as the worst month on the calendar for the stock market.

    This is in view of some of the worst market calamities that have occurred during this month in recent years.

    They include the terrorist attacks on New York's World Trade Centre in 2001 and the collapse of United States investment bank Lehman Brothers seven years later, in 2008.

    So, as trading for this month kicks off today, there are likely to be traders who will pare down their stock exposure or postpone investing the cash they have.

    But so far, the latest fund flow report produced by Citi Investment Research shows that foreign investors are positive on both equities and bonds.

    Last week, they poured US$5.3 billion (S$6.6 billion) into bond funds and US$5 billion into equity funds.

    In particular, they were bullish on Asia, as they put about US$1.8 billion into funds which invest in markets such as Taiwan, India and Korea.

    On the flip side, however, there are the usual naysayers who are worried that a big correction may be just around the corner, as it has been three years since the US market experienced a 10 per cent correction.

    And given the influence which Wall Street has on the rest of the world's stock markets, they are concerned that if the US bull run suddenly screeches to a halt, it may have a huge negative impact on the stock market here.

    For them, the sight of Wall Street's S&P 500 Index closing on Friday above the 2,000 level at 2,003.37, as it marked its 32nd record close for this year, was a telltale sign that the US stock rally may be on its last leg.

    As such, it is worthwhile examining some of the "known unknowns" confronting the market - to use a phrase made famous by Donald Rumsfeld, a former US defence secretary.

    Most of the risks are geopolitical in nature.

    One of the biggest known unknowns is the conflict in Ukraine, as the North Atlantic Treaty Organisation confirmed Ukrainian claims that troops from Russia were involved in direct fighting against Ukrainian forces.

    That sparks concerns that the West may be drawn deeper into the war, besides merely imposing economic penalties on Russia, as the Ukrainian crisis escalates.

    Then, in a move which recalled the precautionary measures taken after the Sept 11, 2001 attack on the US, Britain warned of a possible terror attack because of the growing activities of Islamist groups in Syria and Iraq.

    US President Barack Obama's dithering over the sort of military action he should take in Syria against Islamist radicals only serves to add a further element of uncertainty to this month.

    On the financial front, there is the usual question as to how emerging markets such as Indonesia and Brazil would cope with a possible slowdown in China's investment spending and an eventual rise in US interest rates, as the US central bank winds up its massive bond-buying programme.

    This was in view of the mayhem that hit emerging stock markets last year when then US central bank chief Ben Bernanke flagged a scaling down of the bond-buying.

    On the local front, the takeaway from the recent corporate reporting season is that many companies missed the estimated earnings forecasts by analysts.

    Citi said in a recent note that notable misses included plantation counters such as Wilmar International and Golden Agri-Resources, as well as transportation counters like Singapore Airlines and Neptune Orient Lines.

    Perhaps, that explains why daily stock market turnover could scarcely vault past the $1 billion hurdle - traders would rather sit on the sidelines and not load up on stocks.