Caution rules ahead of Q4 results in US

Tightening of bank credit in China also restrains market activity

By Goh Eng Yeow

THE triple-digit losses on Wall Street last Friday kept local investors cautious yesterday while their counterparts across the region were in retreat.

Trading stayed in a tight band range, with the benchmark Straits Times Index not showing much direction before finally settling for a 3.6 point gain to 2,912.02.

Concerns over the weakness in United States equities surfaced elsewhere, with Hong Kong's Hang Seng ending 0.9 per cent lower while Tokyo's Nikkei-225 Index was down 1.16 per cent.

Wall Street's closure for a public holiday yesterday as well as a spate of fourth-quarter results out later this week from US corporate giants like Citigroup, IBM and General Electric apparently dampened the appetite for risk-taking among traders.

But it was not merely concerns over Wall Street that turned traders cagey about the scope for further gains in the regional stock markets.

Apparently, one big worry is that the smart money has been coming off the table over the past two weeks, as funds reduced their exposure to hotly-pursued markets like China.

Citigroup strategist Elaine Chu noted yesterday that, in the past two weeks, redemptions from China-country funds have hit US$485 million (S$674 million).

Although the outflow had originated from exchange traded funds holding A-shares, which are quoted only in China, it has since spread to the H-shares of mainland firms traded in Hong Kong.

Redemptions from these funds have come amid a general tightening of bank credit in China. The central bank has raised the quantum of deposits that mainland lenders are supposed to keep as reserves from 15 per cent to 15.5 per cent.

The steps have led to the Hang Seng falling 1.9 per cent and the Shanghai Composite 1.2 per cent since the year started, while the STI is still up 0.5 per cent.

Still, despite traders' caginess over market directions, the wave of mergers and acquisition rolled on relentlessly.

Property giant CapitaLand announced that its unit, CapitaLand China (RE) Holdings, has inked a US$2.2 billion agreement to double the size of its China property portfolio. The counter was halted from trading, pending news of the purchase.

The Singapore Exchange said after trading hours that its second-quarter profit fell 3.9 per cent to $71.75 million, compared with the same period last year. But operating revenues inched up 2.7 per cent to $150.72 million.

It attributed the drop in quarterly earnings to a 'non-recurring CEO transition cost', with Mr Magnus Bocker taking over the helm from previous chief executive Hsieh Fu Hua. The counter added two cents to $8.36.

On the broad market, overall market volume stayed below two billion shares for the second day, at 1.72 billion shares worth $1.29 billion.

The most actively traded stock was Genting Singapore, which rose four cents to $1.29, with 219.3 million shares traded. Its casino resort starts welcoming its first paying guests from this week.

Source: Straits Times, 19 Jan 2010.