Investors are tamping down exuberance in view of worrying signs
By Goh Eng Yeow 11 June 2009
So far, June has turned out to be a disappointing month for Asian stock markets.
After sharp gains last month, regional stock indexes stalled early this month - despite commodity-related stocks getting a leg-up by rising crude oil prices yesterday.
The benchmark Straits Times Index has gained only 2.7 per cent so far this month, compared to the giant gain of 21.3 per cent it made last month.
Likewise, Hong Kong’s Hang Seng Index was up just 3.3 per cent - a pale shadow of the 17.1 per cent gain it made last month.
This dramatic stall has started a debate about the sustainability of the current market rally, now into its 14th week and already the longest upswing since the global financial crisis erupted nearly two years ago.
In a report last week, Merrill Lynch attributed the run-up in the regional stock markets to the confluence of three global trends.
These were the United States central bank’s policy of pumping trillions of dollars into the world financial system to combat the impact of the credit crunch; China’s appetite for non-US dollar foreign assets; and the world’s desire to gain exposure in China-linked assets.
One consequence of these three trends coming together has been to turn the region’s two highly liquid stock markets - Singapore and Hong Kong - into the ‘dumping ground for global liquidity’, as Merrill put it, as foreign investors were lured back into Asia.
Since March, the Singapore and Hong Kong markets have moved in lockstep with Shanghai, as they benefited from foreign investors’ renewed love affair with China and the grabbing of any stocks with exposure to China.
What fuelled investors’ enthusiasm was a positive reading of China’s purchasing manager index (PMI), which flagged that the country’s giant manufacturing sector was on the mend.
And this observation seemed to be confirmed by an upsurge since April in the Baltic Dry Index, which tracks freight rates for shipping commodities, signalling that China’s appetite for raw materials was growing again.
In Singapore, the biggest gainers were the three local banks which have clients with business exposure in China, and property developers like CapitaLand with substantial real estate investments in China.
Even the moribund S-chips got a boost, despite there being some wariness about the sector following a number of corporate governance and accounting irregularity scandals.
Since end-March, the FTSE-ST China Index - which tracks 47 S-chips - has risen by a staggering 74 per cent.
Last month alone, the STI added 409 points, as it rallied in response to China’s April PMI data confirming that the mainland’s manufacturing sector had grown for a second straight month.
Surprisingly, investors displayed none of their earlier exuberance when China released its May PMI data last week which showed manufacturing growth for the third consecutive month.
Sure, the PMI data flagged another production rise, but other indicators were beeping red on investors’ radar screens and making them think that the China growth story painted by analysts might be a tad too rosy.
China’s electricity production data, for example, told a different story from the PMI figures.
For an economy which is purportedly growing at more than 6 per cent a year, electricity usage fell 3.5 per cent last month, after rising in March and April.
This was a sure sign that the manufacturing sector might not be growing by much at all.
The latest inflation data released yesterday showed that China’s prices fell 1.4 per cent last month. This was read as an indication that thrifty mainlanders were in no mood to spend to pick up the slack demand caused by belt-tightening consumers in recession-hit Western economies.
Of note was a tacit admission last week by China’s vice-commerce minister, Mr. Zhong Shan, that mainland exporters were facing ‘unprecedented difficulties...and that the trade situation would not be optimistic in the second half of this year’.
Another worrying sign has been picked up by market watchers.
After rising almost non-stop since early April, the Baltic Dry Index has fallen over the past four days - signalling that the surge in demand for raw materials in China could be waning.
This has led some traders to suggest that the earlier upsurge of commodity buying could be related to stockpiling ahead of the projected expansion in China’s public works, rather than a pick-up in manufacturing output.
So, unless we get fresh data to show us convincingly that China’s growth story remains intact, it is likely that regional bourses will stay in the doldrums for some time to come.
2 comments:
China growth story needs to be more convincing
Investors are tamping down exuberance in view of worrying signs
By Goh Eng Yeow
11 June 2009
So far, June has turned out to be a disappointing month for Asian stock markets.
After sharp gains last month, regional stock indexes stalled early this month - despite commodity-related stocks getting a leg-up by rising crude oil prices yesterday.
The benchmark Straits Times Index has gained only 2.7 per cent so far this month, compared to the giant gain of 21.3 per cent it made last month.
Likewise, Hong Kong’s Hang Seng Index was up just 3.3 per cent - a pale shadow of the 17.1 per cent gain it made last month.
This dramatic stall has started a debate about the sustainability of the current market rally, now into its 14th week and already the longest upswing since the global financial crisis erupted nearly two years ago.
In a report last week, Merrill Lynch attributed the run-up in the regional stock markets to the confluence of three global trends.
These were the United States central bank’s policy of pumping trillions of dollars into the world financial system to combat the impact of the credit crunch; China’s appetite for non-US dollar foreign assets; and the world’s desire to gain exposure in China-linked assets.
One consequence of these three trends coming together has been to turn the region’s two highly liquid stock markets - Singapore and Hong Kong - into the ‘dumping ground for global liquidity’, as Merrill put it, as foreign investors were lured back into Asia.
Since March, the Singapore and Hong Kong markets have moved in lockstep with Shanghai, as they benefited from foreign investors’ renewed love affair with China and the grabbing of any stocks with exposure to China.
What fuelled investors’ enthusiasm was a positive reading of China’s purchasing manager index (PMI), which flagged that the country’s giant manufacturing sector was on the mend.
And this observation seemed to be confirmed by an upsurge since April in the Baltic Dry Index, which tracks freight rates for shipping commodities, signalling that China’s appetite for raw materials was growing again.
In Singapore, the biggest gainers were the three local banks which have clients with business exposure in China, and property developers like CapitaLand with substantial real estate investments in China.
Even the moribund S-chips got a boost, despite there being some wariness about the sector following a number of corporate governance and accounting irregularity scandals.
Since end-March, the FTSE-ST China Index - which tracks 47 S-chips - has risen by a staggering 74 per cent.
Last month alone, the STI added 409 points, as it rallied in response to China’s April PMI data confirming that the mainland’s manufacturing sector had grown for a second straight month.
Surprisingly, investors displayed none of their earlier exuberance when China released its May PMI data last week which showed manufacturing growth for the third consecutive month.
Sure, the PMI data flagged another production rise, but other indicators were beeping red on investors’ radar screens and making them think that the China growth story painted by analysts might be a tad too rosy.
China’s electricity production data, for example, told a different story from the PMI figures.
For an economy which is purportedly growing at more than 6 per cent a year, electricity usage fell 3.5 per cent last month, after rising in March and April.
This was a sure sign that the manufacturing sector might not be growing by much at all.
The latest inflation data released yesterday showed that China’s prices fell 1.4 per cent last month. This was read as an indication that thrifty mainlanders were in no mood to spend to pick up the slack demand caused by belt-tightening consumers in recession-hit Western economies.
Of note was a tacit admission last week by China’s vice-commerce minister, Mr. Zhong Shan, that mainland exporters were facing ‘unprecedented difficulties...and that the trade situation would not be optimistic in the second half of this year’.
Another worrying sign has been picked up by market watchers.
After rising almost non-stop since early April, the Baltic Dry Index has fallen over the past four days - signalling that the surge in demand for raw materials in China could be waning.
This has led some traders to suggest that the earlier upsurge of commodity buying could be related to stockpiling ahead of the projected expansion in China’s public works, rather than a pick-up in manufacturing output.
So, unless we get fresh data to show us convincingly that China’s growth story remains intact, it is likely that regional bourses will stay in the doldrums for some time to come.
Post a Comment