Singapore Bourse may face Fresh Selldown..

Nov 12, 2007

TAKING STOCK: S'pore bourse may face fresh selldown
Regional banks set to be hit hardest by fear of US fallout spreading to Asia

WALL Street's late selldown last Friday bodes ill for Asian markets as they open for trading today. What may un-nerve traders is the contagion that seems to be spreading across Wall Street, as more United States banks unveiled write-downs on their pools of debts backed by souring US mortgages.

Last Friday, it was Nasdaq's turn to get hammered, as technology stocks fell by 2.5 per cent on fears that banks may trim their capital spending to preserve capital. And while the Dow Jones Industrial Average's 223- point or 1.7 per cent fall on Friday was nowhere as severe as Wednesday's 361-point plunge, the precipitous nature of the sell-off during the final hour of trading is likely to weigh on investors' sentiment today.

Colliding with the bad news coming out of Wall Street was an unwelcome move by China to tighten money supply by raising the reserve requirement for banks for the ninth time this year.
The biggest fear is again an unholy combination of fund managers selling down their holdings of Asian shares to meet redemption calls of investors back home and hedge funds taking advantage of the chaos to 'short-sell' in the hope of buying back the shares more cheaply later on.

SUDDEN DROP

The precipitous nature of the Dow's sell-off during the final hour of trading last Friday is likely to weigh on investors' sentiment today.

'The fear factor is what traders will have to contend with. The selldown on Wall Street last Friday may extend to Asian markets,' said a dealer.

And among the stocks likely to be hit the hardest are regional banks, even though their exposure to souring US mortgages may be small when compared with that of the European and US banks.

'Call it collateral fallout. Billions of dollars of suspect mortgages have been diced up into bonds and sold all over the world. They can land anywhere, but financial institutions are the chief suspects,' said an analyst.

This will weigh heavily on bank-dominated indexes such as the Straits Times Index (STI) and Hong Kong's Hang Seng Index as banks come under selling pressure.

Last week, the STI fell 115.65 points, or 3.1 per cent, to 3,599.67, while the Hang Seng was down 1,685 points, or 5.5 per cent, at 28,783.41.

There will also be fresh concerns over a possible unravelling of the yen carry trade, as the greenback weakens further against the Japanese currency.

Many hedge fund managers had borrowed heavily in yen because of Japan's very low interest rates to buy higher-yielding assets.

'Given the volatile trading conditions, a 100-point drop in the STI and a 1,000-point plunge in the Hang Seng is quite possible. This will be a nail-biting week,' said CIMB-GK research head Song Seng Wun.