Investors offloaded after learning US Senate had passed bailout bill
By R SIVANITHY 4 October 2008
EVERY so often, investors get a grim reminder of the stock market maxim ‘buy in anticipation, sell on news’. And this week was just such an instance.
A rally ahead of the US Senate’s vote on the US Treasury’s Bank Asset Rescue Fund (BARF) dissipated almost the moment news was released on Thursday that the Senate had passed the package.
The ‘sell-on-news’ syndrome also hit Wall Street hard. Its major indices plunged on Thursday - a sell-off that spilled over to this part of the world yesterday, dragging the Straits Times Index down 66.48 points or just under 3 per cent to 2,297.12.
For the week, the STI lost 114 points or 4.7 per cent - a dismaying performance from a chartist’s perspective, given that it resulted in the loss of the 2,300 mark that had held firm twice during the past fortnight.
Yesterday’s selling was near relentless. It focused on the marine and offshore sector, possibly because of the capital-intensive nature of this business and the likely effect the credit crunch will have on it.
Keppel started the week at $8.23 but finished at $7.04 yesterday for a loss of 14 per cent, while Sembcorp Industries shed 16 per cent over the five days and Sembcorp Marine gave up 15 per cent.
Property stocks also came under pressure, with the FT ST Real Estate Index dropping about 8 per cent. And the FT ST Financials Index lost 3.7 per cent.
In its latest assessment of equities and the US rescue package, BCA Research said it expects markets to remain at risk even if the House of Representatives approves the package after the Senate.
‘Passage should provide a lift, but this may prove temporary if not followed up with other measures needed to restore order to global credit markets, including the suspension of mark-to-market accounting,’ BCA said. ‘Our fear is that policymakers, including many central banks, still do not fully grasp the challenges facing the financial system.
‘Governments must effectively guarantee the banking system on both the asset and liability side, and provide more relief to homeowners. Coordinated rate cuts are also necessary to stem the economic damage already evident in the latest purchasing managers’ surveys in the US and Europe.
‘In the end, policymakers will do what is needed. The unknown is whether even more market rioting is first needed.’
The only other report of note this week was Citi Investment Research’s sobering assessment of Singapore’s economic outlook, bluntly titled ‘Heading towards a Recession’.
In the Oct 1 report, Citi said that although shares have fallen sharply, they are still above trough valuations seen in previous recessions. It also said the current bear market is only in its 50th week - still far short of the average 85 weeks in previous bear markets with recessions.
Citi reckons the STI’s bottom is at 2,080 (1.25 times price/book) but cautioned that a worst-case bottom of 1,800 (1:1 price/book) cannot be ruled out. It expects the Singapore dollar to weaken, and its top sells are the Singapore Exchange, DBS, OCBC, CapitaLand and Singapore Airlines.
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They Bought in Anticipation and Sold on News
Investors offloaded after learning US Senate had passed bailout bill
By R SIVANITHY
4 October 2008
EVERY so often, investors get a grim reminder of the stock market maxim ‘buy in anticipation, sell on news’. And this week was just such an instance.
A rally ahead of the US Senate’s vote on the US Treasury’s Bank Asset Rescue Fund (BARF) dissipated almost the moment news was released on Thursday that the Senate had passed the package.
The ‘sell-on-news’ syndrome also hit Wall Street hard. Its major indices plunged on Thursday - a sell-off that spilled over to this part of the world yesterday, dragging the Straits Times Index down 66.48 points or just under 3 per cent to 2,297.12.
For the week, the STI lost 114 points or 4.7 per cent - a dismaying performance from a chartist’s perspective, given that it resulted in the loss of the 2,300 mark that had held firm twice during the past fortnight.
Yesterday’s selling was near relentless. It focused on the marine and offshore sector, possibly because of the capital-intensive nature of this business and the likely effect the credit crunch will have on it.
Keppel started the week at $8.23 but finished at $7.04 yesterday for a loss of 14 per cent, while Sembcorp Industries shed 16 per cent over the five days and Sembcorp Marine gave up 15 per cent.
Property stocks also came under pressure, with the FT ST Real Estate Index dropping about 8 per cent. And the FT ST Financials Index lost 3.7 per cent.
In its latest assessment of equities and the US rescue package, BCA Research said it expects markets to remain at risk even if the House of Representatives approves the package after the Senate.
‘Passage should provide a lift, but this may prove temporary if not followed up with other measures needed to restore order to global credit markets, including the suspension of mark-to-market accounting,’ BCA said. ‘Our fear is that policymakers, including many central banks, still do not fully grasp the challenges facing the financial system.
‘Governments must effectively guarantee the banking system on both the asset and liability side, and provide more relief to homeowners. Coordinated rate cuts are also necessary to stem the economic damage already evident in the latest purchasing managers’ surveys in the US and Europe.
‘In the end, policymakers will do what is needed. The unknown is whether even more market rioting is first needed.’
The only other report of note this week was Citi Investment Research’s sobering assessment of Singapore’s economic outlook, bluntly titled ‘Heading towards a Recession’.
In the Oct 1 report, Citi said that although shares have fallen sharply, they are still above trough valuations seen in previous recessions. It also said the current bear market is only in its 50th week - still far short of the average 85 weeks in previous bear markets with recessions.
Citi reckons the STI’s bottom is at 2,080 (1.25 times price/book) but cautioned that a worst-case bottom of 1,800 (1:1 price/book) cannot be ruled out. It expects the Singapore dollar to weaken, and its top sells are the Singapore Exchange, DBS, OCBC, CapitaLand and Singapore Airlines.
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