Wall Street wields greater impact on local stocks as China market influence continues to wane
By R SIVANITHY 26 September 2009
The influence of the China market as a pacesetter for local stocks continued to wane this week, with Wall Street clearly exerting the greater effect.
Second-line activity was driven by numerous rights issues, placements and, in some cases, the entry of new ‘strategic partners’.
At least one broker, DMG & Partners, sounded a note of caution during the week about the heavy concentration of liquidity in low-priced penny issues, though for the time being, rotational playing of these third-liners is clearly a favoured strategy.
Brokers this week spoke only in passing of the volatile China market as an influence of local sentiment which, by extension, suggested that Wall Street’s impact was greater.
As a result, the Straits Times Index (STI) moved in tandem with expectations of how the US market might perform in the sessions ahead, with yesterday’s 4.61-point loss at 2,662.82 indicating general unsureness, given that US stocks declined for two consecutive days on Wednesday and Thursday. For the week, the STI gained 15 points or 0.6 per cent.
As for the second-liners, brokers spoke of scores of companies grabbing opportunities to undertake rights issues and placements, with some even claiming that shares are being ramped so as to achieve better prices.
Whatever the case, one dealer said ‘these opportunitistic fund-raising exercises are sucking liquidity out of the market and in the past, have signalled a market top’.
The same conclusion might reasonably be drawn from anecdotal testimony that retail punters are engaging in hectic contra trading of penny stocks.
The same point was made by DMG in its Sept 23 Market Strategy titled ‘Buy-on-weakness stance’, in which it said it has turned short-term bearish on the market for two reasons - low economic growth and low price-per-share traded.
‘We are forecasting 2010 GDP growth of 1.2 per cent, lower than the 1996-2008 CAGR (compounded annual growth rate) of 5.2 per cent. The soft US government bond yields suggest the market is not convinced of a sharp US economic recovery,’ said DMG.
It also said that if history is anything to go by, the average value per unit traded at 74 cents for the first three weeks of September points to weakness ahead. (In yesterday’s session, the average unit price traded was 50 cents.)
However, it believes that on a 12-month basis, the STI can reach 2,880.
DBS Group Research in its Q4 Tactical Regional Asset Allocation said it is positive on equities in the fourth quarter.
‘This is despite the fact that the Hong Kong and Chinese markets may experience more volatility. Consolidation, if any, would be a good opportunity to add to positions and we recommend staying invested for longer-term gains. Asia’s valuations are getting stretched but support levels suggest a correction would not be severe.
‘Moreover, while Asia is not cheap, world equity valuations are cheap and Asian stock markets will trade higher with the rest of the world against a backdrop of a synchronised global recovery.’
Among the stocks in the limelight was Noble Group, following the purchase of a 15 per cent stake by China’s sovereign wealth fund China Investment Corp (CIC) at $2.11 per share. Brokers welcomed the move; OCBC Investment Research, for example, called a ‘buy’ on Noble with a $2.67 target price.
Noble yesterday fell four cents to $2.44, but was up 14 cents or 6.1 per cent after it resumed trading following the CIC announcement.
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Rights-driven penny fever reigns supreme
Wall Street wields greater impact on local stocks as China market influence continues to wane
By R SIVANITHY
26 September 2009
The influence of the China market as a pacesetter for local stocks continued to wane this week, with Wall Street clearly exerting the greater effect.
Second-line activity was driven by numerous rights issues, placements and, in some cases, the entry of new ‘strategic partners’.
At least one broker, DMG & Partners, sounded a note of caution during the week about the heavy concentration of liquidity in low-priced penny issues, though for the time being, rotational playing of these third-liners is clearly a favoured strategy.
Brokers this week spoke only in passing of the volatile China market as an influence of local sentiment which, by extension, suggested that Wall Street’s impact was greater.
As a result, the Straits Times Index (STI) moved in tandem with expectations of how the US market might perform in the sessions ahead, with yesterday’s 4.61-point loss at 2,662.82 indicating general unsureness, given that US stocks declined for two consecutive days on Wednesday and Thursday. For the week, the STI gained 15 points or 0.6 per cent.
As for the second-liners, brokers spoke of scores of companies grabbing opportunities to undertake rights issues and placements, with some even claiming that shares are being ramped so as to achieve better prices.
Whatever the case, one dealer said ‘these opportunitistic fund-raising exercises are sucking liquidity out of the market and in the past, have signalled a market top’.
The same conclusion might reasonably be drawn from anecdotal testimony that retail punters are engaging in hectic contra trading of penny stocks.
The same point was made by DMG in its Sept 23 Market Strategy titled ‘Buy-on-weakness stance’, in which it said it has turned short-term bearish on the market for two reasons - low economic growth and low price-per-share traded.
‘We are forecasting 2010 GDP growth of 1.2 per cent, lower than the 1996-2008 CAGR (compounded annual growth rate) of 5.2 per cent. The soft US government bond yields suggest the market is not convinced of a sharp US economic recovery,’ said DMG.
It also said that if history is anything to go by, the average value per unit traded at 74 cents for the first three weeks of September points to weakness ahead. (In yesterday’s session, the average unit price traded was 50 cents.)
However, it believes that on a 12-month basis, the STI can reach 2,880.
DBS Group Research in its Q4 Tactical Regional Asset Allocation said it is positive on equities in the fourth quarter.
‘This is despite the fact that the Hong Kong and Chinese markets may experience more volatility. Consolidation, if any, would be a good opportunity to add to positions and we recommend staying invested for longer-term gains. Asia’s valuations are getting stretched but support levels suggest a correction would not be severe.
‘Moreover, while Asia is not cheap, world equity valuations are cheap and Asian stock markets will trade higher with the rest of the world against a backdrop of a synchronised global recovery.’
Among the stocks in the limelight was Noble Group, following the purchase of a 15 per cent stake by China’s sovereign wealth fund China Investment Corp (CIC) at $2.11 per share. Brokers welcomed the move; OCBC Investment Research, for example, called a ‘buy’ on Noble with a $2.67 target price.
Noble yesterday fell four cents to $2.44, but was up 14 cents or 6.1 per cent after it resumed trading following the CIC announcement.
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