Factors at play range from window-dressing hopes to Fed rate cut to Wall Street expectations
By R SIVANITHY 20 December 2008
THE final weeks of any year are traditionally marked by low volume, narrow price ranges, and hope within the ranks of investors that there will be window-dressing or artificial padding of the major indices just before Dec 31.
Since the latter has occurred frequently enough in past years to become a very real possibility every year-end, the game then becomes one of trying to benefit from this by buying early enough, or at least earlier than others, so as to sell to the window-dressers.
(It’s a bit like a Ponzi scheme in that it relies on later buyers being the greater fools as Dec 31 draws nearer and earlier buyers benefiting as they exit.)
So it is very likely that because the blatant window-dressing of Nov 30 is still fresh in the memory and because everyone believes that funds have no choice but to prop up the indices to reduce the red ink on their 2008 books that the major indices have been well-supported in the past few days.
The other factor is the almost-unprecedented move by the US Federal Reserve to cut its short-term interest rate to zero and the avowed aim to keep it there for as long as it takes in order to boost the ailing US economy, never mind that repeated cuts from above 5 per cent have not had any effect yet.
In a comment on the Fed rate cut, Schroders’ chief economist Keith Wade said in a Wednesday note that the statement adds little to what is already known.
‘In some ways, Fed policy meetings have been redundant for some time, as Bernanke has moved to implement the policies he had previously discussed during the last deflation scare five years ago ... the Fed’s aggressive action goes a long way to stabilising markets and calming investors. However, it only eases some of the major economic imbalances rather than solves them.’
Of course, much also depends on expectations surrounding Wall Street’s future performance - Wednesday’s rapid decline here, for example, coming ahead of a slide in the US; but yesterday’s rise clearly in anticipation of a rebound on Wall Street.
So we have on one hand hope that the blue chips must surely be pushed by desperate funds at year-end, which leads to the urge to buy first, versus daily shifts in expectations about Wall Street’s impending movements - the latter typically encapsulated in Hong Kong’s meandering and how the US futures contracts trade.
On top of this, there was the small matter of a deepening trade slowdown to deal with. Morgan Stanley in its analysis of the latest export figures said that ‘with the deepening macro slowdown and cyclical and structural issues, Singapore trade data is likely to show continued contraction’, while JP Morgan said non-oil domestic export growth has contracted for six consecutive months and, given the magnitude of the latest fall, ‘economic growth in Singapore looks set to post another large decline this quarter’.
Thus it was yesterday that the movements in the Straits Times Index reflected the tug-of-war between the various factors. With support coming also from a sudden push on property stocks for reasons that no one could fathom, the index closed 19.66 points higher at 1,798.95.
Macquarie Research said in its Outlook 2009 for Asia Pacific that the next reporting season will be one of the worst on record. ‘Earnings will certainly be terrible but the bigger issues will be damage to balance sheets from rising inventories and customer defaults.’ It said it expects the clouds to clear from Q2 onwards and retained an ‘overweight’ on Singapore.
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Tug-of-War in the Final Weeks of 2008
Factors at play range from window-dressing hopes to Fed rate cut to Wall Street expectations
By R SIVANITHY
20 December 2008
THE final weeks of any year are traditionally marked by low volume, narrow price ranges, and hope within the ranks of investors that there will be window-dressing or artificial padding of the major indices just before Dec 31.
Since the latter has occurred frequently enough in past years to become a very real possibility every year-end, the game then becomes one of trying to benefit from this by buying early enough, or at least earlier than others, so as to sell to the window-dressers.
(It’s a bit like a Ponzi scheme in that it relies on later buyers being the greater fools as Dec 31 draws nearer and earlier buyers benefiting as they exit.)
So it is very likely that because the blatant window-dressing of Nov 30 is still fresh in the memory and because everyone believes that funds have no choice but to prop up the indices to reduce the red ink on their 2008 books that the major indices have been well-supported in the past few days.
The other factor is the almost-unprecedented move by the US Federal Reserve to cut its short-term interest rate to zero and the avowed aim to keep it there for as long as it takes in order to boost the ailing US economy, never mind that repeated cuts from above 5 per cent have not had any effect yet.
In a comment on the Fed rate cut, Schroders’ chief economist Keith Wade said in a Wednesday note that the statement adds little to what is already known.
‘In some ways, Fed policy meetings have been redundant for some time, as Bernanke has moved to implement the policies he had previously discussed during the last deflation scare five years ago ... the Fed’s aggressive action goes a long way to stabilising markets and calming investors. However, it only eases some of the major economic imbalances rather than solves them.’
Of course, much also depends on expectations surrounding Wall Street’s future performance - Wednesday’s rapid decline here, for example, coming ahead of a slide in the US; but yesterday’s rise clearly in anticipation of a rebound on Wall Street.
So we have on one hand hope that the blue chips must surely be pushed by desperate funds at year-end, which leads to the urge to buy first, versus daily shifts in expectations about Wall Street’s impending movements - the latter typically encapsulated in Hong Kong’s meandering and how the US futures contracts trade.
On top of this, there was the small matter of a deepening trade slowdown to deal with. Morgan Stanley in its analysis of the latest export figures said that ‘with the deepening macro slowdown and cyclical and structural issues, Singapore trade data is likely to show continued contraction’, while JP Morgan said non-oil domestic export growth has contracted for six consecutive months and, given the magnitude of the latest fall, ‘economic growth in Singapore looks set to post another large decline this quarter’.
Thus it was yesterday that the movements in the Straits Times Index reflected the tug-of-war between the various factors. With support coming also from a sudden push on property stocks for reasons that no one could fathom, the index closed 19.66 points higher at 1,798.95.
Macquarie Research said in its Outlook 2009 for Asia Pacific that the next reporting season will be one of the worst on record. ‘Earnings will certainly be terrible but the bigger issues will be damage to balance sheets from rising inventories and customer defaults.’ It said it expects the clouds to clear from Q2 onwards and retained an ‘overweight’ on Singapore.
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