Market may slow down soon

Earnings season will decide if shares continue sprinting or consolidate

AFTER some directionless and muted market trading last week, talk is swirling that a much-anticipated slowdown could finally be on the cards.

While a pullback is unlikely as of now, some market players are expecting Singapore shares to remain flat in the next fortnight.

Remisier Charles Chua said: 'The market has gone up quite strongly for the past 11/2 months. It is starting to consolidate and meet some resistance... I expect it to trade sideways in the immediate future.'

Another broker commented that there seemed to be 'no strength' in the rally, and that the market was hitting new highs before falling down again.

This was most evident last week, when the benchmark Straits Times Index (STI) could not build on its 17-month high of 2,933.53 on Monday. For the rest of the trading days, the index bandied without much direction around the 2,900 mark before closing at 2,908.42 on Friday, a fall of 14.34 points, or 0.49 per cent, from the previous week's close.

The lacklustre mood was not confined to Singapore. Australia's S&P/ASX 200 was down 0.25 per cent last week, its first loss in over a month.

Announcements on Tuesday of monetary tightening from the Chinese authorities led to Hong Kong's Hang Seng Index losing 2.88 per cent on the week. However, the Shanghai bourse showed remarkable mettle to recover from the same news and finished the week up by 0.88 per cent.

American stocks were also muted, with the Dow Jones Industrial Average finishing the week 0.08 per cent lower while the Nasdaq Composite Index was down 1.26 per cent.

In Singapore, similar bouts of muted trading could be the theme in the short term moving forward. Investors adopted a wait-and-see attitude last Friday and allowed volumes that day to fall to 1.68 billion shares worth $1.42 billion. It was the first time this year that the daily volume has dropped under two billion shares.

Not that such a slowdown will worry the markets. Quite on the contrary, sentiments are that a pullback - or a least a stall in the bull run - will be necessary for longer-term investors to enter the market.

Mr Chua said: 'If the market consolidates or trades sideways for now, it will be perfectly healthy. It has sprinted since last March, after all. The firepower has been used up. You can't sprint all the way till 3,300... If you do, the correction will be quite major then.'

But then, such talk of a pullback or correction has been in the market for a while, given the spectacular rally since March last year. Said AmFraser Securities' senior vice-president of research Najeeb Jarhom: 'Most of us have given up hope of seeing a correction of 10 per cent to 15 per cent or even a pullback of 5 per cent to 9 per cent.'

He said this was because the market has not seen a bigger pullback than 8.7 per cent in June last year during the early part of the unstoppable recovery, when the market rose from March's low of 1,455 to last year's closing high of 2,898.

He added: 'Strangely enough, as the STI got higher the pullbacks got smaller and this trend appears set to continue.'

A lot will depend on the upcoming earnings season, which will kick off this week with telco M1 and several Reits announcing their results.

Earnings results trickling in from the United States will also have a knock-on effect on the bourse here. They will either help trigger a pull-back to the market, or fuel the continuation of the bull run.

Source: Straits Times, 18 Jan 2010.