Asia set for more wild swings

The Straits Times
Nov 17, 2008 | 6:00 AM
Asia set for more wild swings
But US experts' talk of 'hitting bottom' could signal recovery
By Alvin Foo, Markets Correspondent

ASIAN investors are bracing themselves for more market turbulence this week, with a weak opening the likely outcome today following last week's selldown on Wall Street.

The Dow Jones Industrial Average's 3.82 per cent plunge last Friday will mean more downside for regional bourses, as United States stocks sank nearly 5 per cent for the week.

Downbeat corporate news and a weaker-than-expected report on US retail sales prompted caution after a strong rally on Thursday.

But there is scope for hope.

Markets experts in the US are beginning to talk more about the stock market finally hitting a 'bottom', thus allowing a fresh recovery phase to begin.

Federated Investors market strategist Linda Deussel felt the US market is likely to remain under pressure for some time but does not see further heavy declines.

'This may not be the time to jump into stocks with both feet,' she told Agence France-Presse.

'But we strongly believe that a bottoming process is under way. We remind investors that the lion's share of the first-year gains in a new bull comes in the first few months.'

The optimists will be looking to the summit of the Group of 20 - an emergency meeting of leaders on the global financial crisis - to bring cheer to battered bourses.

In the region, analysts have noted that stock valuations in the Asia-Pacific, excluding Japan, have hit a record low, 'far below' the levels seen in previous crises.

'Valuation is well below the trough levels of the Asian crisis, Asia's deepest modern downturn,' said Morgan Stanley's Asia-Pacific regional strategist Malcolm Wood.

Here, some analysts are upbeat as well.

'We believe that a significant low is in place for the rest of the year and that the [Straits Times Index] will continue to trend higher,' said UOB Kay Hian.

'We believe support at 1,700 will hold for the rest of the year and that investors and traders should start positioning for the next leg up.'

Last week, the STI closed at 1,759.14 - down 104.35 points, or 5.6 per cent, for the week.

Bargain hunting was done selectively, with its pace slowing down from the previous week as investors chose to lock in gains.

Thus, average daily volume traded was just 1.16 billion shares worth $942.11 million, compared with 1.72 billion shares valued at $1.27 billion the week before.

AmFraser Securities senior research vice-president Najeeb Jarhom said: 'Selling into strong rebounds should continue to be the name of the game.'

Overall, the impact of the subprime crisis is starting to take its toll on the real economy worldwide, and this is the top concern on investors' minds.

Last Friday, the European Union announced that the 15 countries in the eurozone were in technical recession for the first time. A technical recession is two consecutive quarters of economic contraction.

Hong Kong has also slipped into technical recession, joining the likes of Singapore, Germany, New Zealand and Ireland.

On the US front, the market should react this week to reports on US industrial production, housing starts and inflation.

Back home, the market's eyes will shift to key macroeconomic data as the third-quarter corporate reporting season has just ended.

Trade figures will be released today, followed by third-quarter economic growth information on Friday.

Flash estimates released last month showed that Singapore's economy declined for a second straight quarter, meaning it had entered a technical recession for the first time since 2002.