There are no discernible improvements in the US or HK economies yet, but stocks react as if there are, rising sharply
By R SIVANITHY 12 December 2008
Underpinning the gains in Hong Kong and the US over the past couple of days are the words ‘rescue’, ‘bailout’ or ‘stimulus’ - either of the ailing American car industry or the flagging Hong Kong and US economies. Of course, there have been no discernible improvements on either front yet but stocks have reacted as if there were, rising sharply ahead of the news.
If so, then it’s possible that yesterday’s 27.54 points loss for the Straits Times Index (STI) at 1,794.16 - which came after a volatile session in Hong Kong ended with the Hang Seng Index only marginally firmer and after Europe opened weaker across-the-board - was an indication that having bought in advance (or hope) of government aid and having enjoyed a decent momentum-driven rally, markets were selling on news.
On Tuesday and Wednesday, the STI rose a combined 162 points or 9.8 per cent on hopes that the US federal government will bail out car makers Ford, GM and Chrysler and continue pumping money into the system. Also helping was news of a HK$100 billion (S$19.2billion) stimulus-cum-job creation plan for the HK economy.
‘We had a window of opportunity open because of hopes of more stimulus,’ said a dealer. ‘But the good news is almost finished and economic data is still bad so maybe the window won’t stay open too long.’
Still, a notable feature of yesterday’s session was the broad market trying to play ‘catch-up’ with the gains posted by blue chips this week. Leading the way were battered China plays such as Cosco Corp, China Hongxing and Yangzijiang, as well as popular commodity stocks such as Golden Agri and Olam International.
Yet another commodities play, Wilmar International, was the subject of an ‘overweight’ from US investment house Morgan Stanley (MS) with a price target of $4. MS said it is more confident of Wilmar’s profit outlook following the company’s strong Q3 figures.
In his Global Investment Strategy for 2009, Merrill Lynch’s chief strategist Richard Bernstein said next year is likely to be better than 2008 but for now, patience is a virtue.
‘We expect the financial markets to continue their metamorphosis during the coming year, moving away from the old leadership themes that relied on free-and-easy credit. Quality-oriented strategies are likely to continue to outperform until credit conditions change and the re-leveraging process begins. That re-leveraging may not occur for several years,’ said Mr. Bernstein.
‘We will continue to closely watch our indicators for signs of a market bottom. Investors should note, however, that market history shows that it is much better to be late than early when trying to time a stock market bottom.’
ML’s North American economist David Rosenberg said in a separate Tuesday report titled ‘Recession now, deflation later’ that he expects the present US recession to last throughout 2009 before an L-shaped recovery takes hold in 2010.
‘Sustained negative wealth effects from the slide in housing and equity prices will reinforce the uptrend in personal savings, creating a highly disinflationary environment as job losses mount and push the unemployment rate up towards 8.5 per cent in the coming year. . .we continue to favour defensive, income-oriented investment strategies rather than pro-cyclical strategy themes for the coming year,’ said Mr. Rosenberg.
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Buy in anticipation, sell on news?
There are no discernible improvements in the US or HK economies yet, but stocks react as if there are, rising sharply
By R SIVANITHY
12 December 2008
Underpinning the gains in Hong Kong and the US over the past couple of days are the words ‘rescue’, ‘bailout’ or ‘stimulus’ - either of the ailing American car industry or the flagging Hong Kong and US economies. Of course, there have been no discernible improvements on either front yet but stocks have reacted as if there were, rising sharply ahead of the news.
If so, then it’s possible that yesterday’s 27.54 points loss for the Straits Times Index (STI) at 1,794.16 - which came after a volatile session in Hong Kong ended with the Hang Seng Index only marginally firmer and after Europe opened weaker across-the-board - was an indication that having bought in advance (or hope) of government aid and having enjoyed a decent momentum-driven rally, markets were selling on news.
On Tuesday and Wednesday, the STI rose a combined 162 points or 9.8 per cent on hopes that the US federal government will bail out car makers Ford, GM and Chrysler and continue pumping money into the system. Also helping was news of a HK$100 billion (S$19.2billion) stimulus-cum-job creation plan for the HK economy.
‘We had a window of opportunity open because of hopes of more stimulus,’ said a dealer. ‘But the good news is almost finished and economic data is still bad so maybe the window won’t stay open too long.’
Still, a notable feature of yesterday’s session was the broad market trying to play ‘catch-up’ with the gains posted by blue chips this week. Leading the way were battered China plays such as Cosco Corp, China Hongxing and Yangzijiang, as well as popular commodity stocks such as Golden Agri and Olam International.
Yet another commodities play, Wilmar International, was the subject of an ‘overweight’ from US investment house Morgan Stanley (MS) with a price target of $4. MS said it is more confident of Wilmar’s profit outlook following the company’s strong Q3 figures.
In his Global Investment Strategy for 2009, Merrill Lynch’s chief strategist Richard Bernstein said next year is likely to be better than 2008 but for now, patience is a virtue.
‘We expect the financial markets to continue their metamorphosis during the coming year, moving away from the old leadership themes that relied on free-and-easy credit. Quality-oriented strategies are likely to continue to outperform until credit conditions change and the re-leveraging process begins. That re-leveraging may not occur for several years,’ said Mr. Bernstein.
‘We will continue to closely watch our indicators for signs of a market bottom. Investors should note, however, that market history shows that it is much better to be late than early when trying to time a stock market bottom.’
ML’s North American economist David Rosenberg said in a separate Tuesday report titled ‘Recession now, deflation later’ that he expects the present US recession to last throughout 2009 before an L-shaped recovery takes hold in 2010.
‘Sustained negative wealth effects from the slide in housing and equity prices will reinforce the uptrend in personal savings, creating a highly disinflationary environment as job losses mount and push the unemployment rate up towards 8.5 per cent in the coming year. . .we continue to favour defensive, income-oriented investment strategies rather than pro-cyclical strategy themes for the coming year,’ said Mr. Rosenberg.
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