Senior Correspondent
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FOR the time being, it looks like China has assumed the mantle traditionally worn by the US stock market, possibly because of the strong computerised trading that links regional markets. Such has been the case this past week and so it was again yesterday when a 4 per cent rebound in China that pushed the Hang Seng Index up about 1.9 per cent meant that the Straits Times Index rose 36.79 points to 2,559.57, thus recouping some of the 45 points lost during Wednesday's China-led sell-off.
Undoubtedly, short-covering also played a big part in movements in ensuring that regional markets moved almost as one, especially given the dependence that institutions place on high-speed computerised trading. Still, although some may wish to demonise computer-driven trading, without such computer programmes in place, it's unlikely that daily volume could regularly cross 1-2 billion units, yesterday's haul being 2.35 billion units worth $1.6 billion.
Interestingly, the STI's bounce was led by CapitaLand and the thinly-traded Jardine group. Banks, traditionally the biggest index movers by virtue of their weightings, played only a minor role, although all three did manage modest gains.
In an Aug 11 report, Goldman Sachs (GS) said that the key negative surprise after the three banks reported their earnings was their larger-than-expected provisions. It also said that although the results were generally good, the absence of a positive market reaction suggests that a benign credit environment has already been priced in.
'We continue to see an NPL-lite (non-performing loans) cycle for Singapore banks. But for DBS, we remain concerned on NPLs outside of the Singapore/Hong Kong core market, the limited visibility of which will likely pose an overhang on the shares,' said GS. It downgraded DBS to 'neutral' and said that OCBC is its only 'buy' in the sector.
In its Aug 18 Singapore Strategy report, CIMB said that it thinks the market was correcting because of fears that governments might withdraw their stimuli before the global economy finds its footing. 'We further believe these fears are unfounded and hence this sell-down should provide the perfect opportunity to buy' said CIMB, adding that the 'easy money' has already been made and that stock-picking will be essential from here on. It recommended reducing weightage in financials in favour of industrials and property and set a 2,700 year-end STI target.
Speaking of stimulus spending, US newspaper Barron's Aug 3 editorial commentary called for an end to the 'US spending party' and to let demand recover on its own.
Quoting President Barack Obama, who a few months ago said that the US economy will lose about a trillion US dollars in demand this year and a trillion next year, writer Thomas Donlan said that the question (Mr Obama) dodged is: where did that demand go? 'The answer is that it was satisfied on credit over the past 16 years. Now the bills must be paid,' he said.
Mr Donlan added that the resources needed to pay for the public sector's bills for creating artificial demand must be taxed or borrowed or created out of thin air with inflation.
'Stimulus spending is like juggling. A juggler can keep many flaming torches in the air but he can't repeal the law of gravity . . . stimulated economies are like frogs in a high school biology lab. They kick as long as the wires are attached but they are just as dead after the experiment is over. America had its cake, it had its student biologists zapping dead frogs, it had its jugglers tossing torches. All that remains are taxes, borrowing and inflation.'
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