Sunday, 8 February 2009
Still very much a market for short-term traders
A drying up of liquidity, quick rallies followed by equally quick declines and the return of rotational playing among penny stocks, mainly from China - these were the hallmarks of yet another forgettable week in the local market, at least in the eyes of the ‘buy-and-hold’ school.
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Still very much a market for short-term traders
By R SIVANITHY
7 February 2009
A drying up of liquidity, quick rallies followed by equally quick declines and the return of rotational playing among penny stocks, mainly from China - these were the hallmarks of yet another forgettable week in the local market, at least in the eyes of the ‘buy-and-hold’ school.
Instead, the pattern was eminently suited to short-term traders, dealers trading in their own accounts and those who bought the dips and did not hang around too long.
This much was clear from daily events, which adhered to a regular, almost-scripted schedule in which prices rose for the first couple of hours then drifted lower for the rest of the day - a schedule that, except for yesterday, had its origins in Hong Kong, where the Hang Seng rose in the morning before weakening in the afternoon.
Gains in the former British colony were because of flickering hopes that Beijing’s stimulus efforts are having an effect. Equally, the almost-immediate sell-offs suggest plenty of scepticism abounds that this is actually the case.
The upshot for the local market, given how closely the two indices are joined by programme trades and house traders, was that the Straits Times Index (STI) displayed the same up-down pattern most days. The net result over the five days was a 31-point loss to 1,715.35, despite yesterday’s 10.75-point bounce.
Perhaps the best that can be said is that the jury is still very much out on whether hefty pump-priming can reverse the present deflationary-cum-recessionary process - a conclusion that applies equally to the efforts of the new US government to cobble together a credible ‘rescue-cum-stimulus package’ in a few weeks, which its predecessor could not do in a year.
Speaking of rescue packages, Schroders credit analyst Roger Doig yesterday pondered the wisdom of the Bad Bank approach, through which government sets up a Bad Bank to buy bad loans, thereby cleaning weak balance sheets and, hopefully, stimulating lending again.
In Schroders’ Talking Point column, Mr. Doig said the key problem is determining the price at which assets are transferred to the Bad Bank.
‘If the bank pays above-market prices, banks will look to offload their worst assets on to taxpayers, which could expose them to severe losses,’ he explained. ‘To get banks to accept a comprehensive Bad Bank approach, governments would very likely have to nationalise them.’ And because nationalisation has serious consequences, Schroders expects the Bad Bank approach to be used only as a last resort.
As the local earnings season gets under way, all eyes will probably be on the banks. In an earnings preview yesterday for DBS, Kim Eng Research maintained its ‘hold’ recommendation, saying it expects Q4 earnings excluding one-off items to fall 30 per cent year-on-year to $391 million.
‘Our analysis shows the sector’s one-year forward PBV (price/book value) tends to bottom at the trough of GDP, which we believe has yet to come,’ said Kim Eng. ‘With no earnings recovery in sight, we retain our ‘hold’ on DBS and prefer an entry level of $7.70.’ Over the course of the week, DBS fell 30 cents to $8.52, half of this coming yesterday.
Average daily volume during the week was about $800 million excluding foreign currency issues. This is considered low and signifies that a fair number of dealers spent their time twiddling their thumbs or playing computer games.
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