Further stock price falls may present buying opportunities for traders
By Goh Eng Yeow 03 October 2009
The curse of October seemed to have struck share markets again yesterday after a dizzying overnight plunge in New York ignited a worldwide sell-off.
Wall Street shed 203 points - its biggest one-day fall in three months - to set the dominoes falling.
Knee-jerk selling began from Mumbai to Sydney, triggered by fears that more bad tidings lie ahead. Singapore’s benchmark Straits Times Index (STI) slipped 52.91 points or 1.99 per cent, while the Hang Seng in Hong Kong plunged almost 580 points - the biggest one-day falls in almost two months for both indexes.
The immediate causes were easy to spot - weak consumer sentiment and poor job figures in the United States, concerns over the rebounding greenback and fears that multibillion-dollar stimulus packages might be rolled back too fast.
And nervous investors would have been all too aware of the timing. October has been the cruellest month for share buyers. The 1929 and 1987 crashes both occurred in the 10th month, and there was plenty of bloodshed last year as well.
The stage was set on Sept 29 last year when Wall Street dived 777.68 points - its biggest plunge in history - after US lawmakers initially refused to pass a US$700 billion (S$990 billion) package to rescue wobbly US banks.
As if this was not a sufficient enough punishment for investors, the Dow Jones Industrial Average then racked up a heart-rending 508.3-point drop on Oct 7 and followed that by losing 678.91 points two days later.
To complete the rout, it then plunged 733.08 points on Oct 15 and a further 514.45 points on Oct 22 as desperate hedge funds were forced into a fire-sale of assets to meet redemption calls from panicky investors.
All in, each of those black days marked the index’s biggest point drops in history, overtaking the 508-point plunge on Oct 19, 1987, when Wall Street suddenly went into convulsions following a spate of large corporate bankruptcies.
This month is only three days old, but investors could be forgiven for asking if this October will be any different.
Their jitters coincide with a big shift in sentiment. Six months ago, investors were so sick of bad news that any good tidings were eagerly seized upon as another ‘green shoot of economic growth’.
But while stock prices have enjoyed a V-shaped recovery since the dark days of March, good news - what there is of it, anyway - is no longer working its magic.
‘The market needs to get fresh insights from the upcoming GDP (gross domestic product) and earnings reports to know where it should be headed,’ said Mr. Najeeb Jarhom, AmFraser Securities’ senior vice-president of research.
Market strategists are also finding Asian equities pricey.
Traders now find themselves jumping at any bad news that might come along - and there has been plenty to rattle already frayed nerves this week.
US jobless claims for last month came in at 551,000 - about 30,000 more than forecast - and an American consumer confidence survey turned out to be a disappointment.
The US dollar’s rebound against major currencies like the euro has raised fears that it might trigger an unravelling of the lucrative US dollar ‘carry trade’. Hedge funds could be forced to unload assets to repay greenback loans as the borrowing costs jack up with the rising US dollar.
Wall Street’s plunge on Thursday may also be linked to the fact that this is the month that central banks led by the US Federal Reserve start to roll back some of the unorthodox measures they had taken to stabilise the global banking system.
If markets take a big enough hit, so the argument goes, surely the central bankers will stay their hand.
Yet for all of yesterday’s nerve-racking losses, it is worth recalling just how jittery and uncertain investors were over where the world was headed around this time last year - and the comparative calm in financial markets now.
Last year, it was usual to find the STI gyrating by as much as 150 points or more in a trading day. Now, intra-day movements of 50 points or less have become the norm over the past three months as blue chip prices stabilise.
Even Wall Street’s 203-point fall was relatively tame when compared with the violent swings of last year.
Traders see the Chicago Board Options Exchange’s Volatility Index (Vix), also known as the fear gauge, as the best measure of Wall Street’s risk appetite. It measures market volatility by tracking the prices of option contracts issued on the S&P 500 Index.
It usually trades at a range of around 20 to 30, but hit a high of 81 in October last year when Lehman Brothers’ failure brought the global banking system to its heels. But on Thursday, it stayed around the 20 to 30 range despite the sell-off, so calm seems to have returned as the default setting among traders.
Any further weakness in stock prices may just produce an excellent buying opportunity for investors still sitting on the sidelines with cash to burn.
Far too soon, in other words, to think we are in for another month of misery.
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Curse of October? Let’s not be hasty
Further stock price falls may present buying opportunities for traders
By Goh Eng Yeow
03 October 2009
The curse of October seemed to have struck share markets again yesterday after a dizzying overnight plunge in New York ignited a worldwide sell-off.
Wall Street shed 203 points - its biggest one-day fall in three months - to set the dominoes falling.
Knee-jerk selling began from Mumbai to Sydney, triggered by fears that more bad tidings lie ahead. Singapore’s benchmark Straits Times Index (STI) slipped 52.91 points or 1.99 per cent, while the Hang Seng in Hong Kong plunged almost 580 points - the biggest one-day falls in almost two months for both indexes.
The immediate causes were easy to spot - weak consumer sentiment and poor job figures in the United States, concerns over the rebounding greenback and fears that multibillion-dollar stimulus packages might be rolled back too fast.
And nervous investors would have been all too aware of the timing. October has been the cruellest month for share buyers. The 1929 and 1987 crashes both occurred in the 10th month, and there was plenty of bloodshed last year as well.
The stage was set on Sept 29 last year when Wall Street dived 777.68 points - its biggest plunge in history - after US lawmakers initially refused to pass a US$700 billion (S$990 billion) package to rescue wobbly US banks.
As if this was not a sufficient enough punishment for investors, the Dow Jones Industrial Average then racked up a heart-rending 508.3-point drop on Oct 7 and followed that by losing 678.91 points two days later.
To complete the rout, it then plunged 733.08 points on Oct 15 and a further 514.45 points on Oct 22 as desperate hedge funds were forced into a fire-sale of assets to meet redemption calls from panicky investors.
All in, each of those black days marked the index’s biggest point drops in history, overtaking the 508-point plunge on Oct 19, 1987, when Wall Street suddenly went into convulsions following a spate of large corporate bankruptcies.
This month is only three days old, but investors could be forgiven for asking if this October will be any different.
Their jitters coincide with a big shift in sentiment. Six months ago, investors were so sick of bad news that any good tidings were eagerly seized upon as another ‘green shoot of economic growth’.
But while stock prices have enjoyed a V-shaped recovery since the dark days of March, good news - what there is of it, anyway - is no longer working its magic.
‘The market needs to get fresh insights from the upcoming GDP (gross domestic product) and earnings reports to know where it should be headed,’ said Mr. Najeeb Jarhom, AmFraser Securities’ senior vice-president of research.
Market strategists are also finding Asian equities pricey.
Traders now find themselves jumping at any bad news that might come along - and there has been plenty to rattle already frayed nerves this week.
US jobless claims for last month came in at 551,000 - about 30,000 more than forecast - and an American consumer confidence survey turned out to be a disappointment.
The US dollar’s rebound against major currencies like the euro has raised fears that it might trigger an unravelling of the lucrative US dollar ‘carry trade’. Hedge funds could be forced to unload assets to repay greenback loans as the borrowing costs jack up with the rising US dollar.
Wall Street’s plunge on Thursday may also be linked to the fact that this is the month that central banks led by the US Federal Reserve start to roll back some of the unorthodox measures they had taken to stabilise the global banking system.
If markets take a big enough hit, so the argument goes, surely the central bankers will stay their hand.
Yet for all of yesterday’s nerve-racking losses, it is worth recalling just how jittery and uncertain investors were over where the world was headed around this time last year - and the comparative calm in financial markets now.
Last year, it was usual to find the STI gyrating by as much as 150 points or more in a trading day. Now, intra-day movements of 50 points or less have become the norm over the past three months as blue chip prices stabilise.
Even Wall Street’s 203-point fall was relatively tame when compared with the violent swings of last year.
Traders see the Chicago Board Options Exchange’s Volatility Index (Vix), also known as the fear gauge, as the best measure of Wall Street’s risk appetite. It measures market volatility by tracking the prices of option contracts issued on the S&P 500 Index.
It usually trades at a range of around 20 to 30, but hit a high of 81 in October last year when Lehman Brothers’ failure brought the global banking system to its heels. But on Thursday, it stayed around the 20 to 30 range despite the sell-off, so calm seems to have returned as the default setting among traders.
Any further weakness in stock prices may just produce an excellent buying opportunity for investors still sitting on the sidelines with cash to burn.
Far too soon, in other words, to think we are in for another month of misery.
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