ASEAN KEY DESTINATIONS
Asean Stock Watch- June 6
More bad days may be in store for stocks in coming weeks, but investors aren't pressing the panic button. Not yet.
With weak job growth and the end of the Federal Reserve's stimulus programme staring investors in the face, the 5 percent drop in the S&P 500 from last month's high is half way toward the market's definition of a correction a 10 percent fall from a recent peak.
The broad market index last Friday recorded its worst week since mid-August and its fifth straight week of declines.
But fund managers displayed caution, rather than distress. Most see the recent data confirming a soft patch, or slowdown, after the government said the economy created a meager 54,000 jobs in May. Others say the economy may be headed for a double-dip recession.
The sharp fall in bond yields also points to a similar concern, but a full-blown downturn in equities isn't in the cards yet, investors say.
For the year stocks still are positive, with the Dow up 5 percent, while the S&P 500 and the Nasdaq are each up about 3 percent.
“The markets will be choppy. They'll be looking for validation that this is just a soft patch we're going through, not the economy rolling over,” said Mike Ryan, the New York-based head of wealth management research for the Americas at UBS Financial Services Inc, which oversees about US$641billion.
Some concede the stock market could see further declines from sovereign debt problems in Europe or a spillover of violence in Yemen into Saudi Arabia, which could lift oil prices, hurting the consumer.
The lack of market-moving economic data or corporate earnings could also make nervous investors hit the sell button more often than not. But the market mantra of “buying the dip,” which has worked since the Fed started round two of its quantitative easing in August could prevail.
“Is another 5 percent (decline) possible here? I don't see why it wouldn't be, given the risk of contagion in Europe,” said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about US$14.8bil.
“The market is constantly reconciling the fact that it's a slow recovery. We had a painful crash and a crisis and we are painfully, gradually getting out it. This pullback, and potentially further pullbacks from here in the next couple of months - I view these as attractive entry points for longer-term investors.”
Data that showed net inflows into global equity funds could confirm investors are not ready to throw in the towel.
Equity funds tracked by EPFR Global saw inflows of US$1.7bil in the week ending last Wednesday, distributed evenly between developed and emerging markets.
The data comes after three weeks of outflows totaling US$18 billion.
Bond funds took in some US$3.5bil in net inflows, a sixteenth straight week of inflows.
From a technical standpoint the US stock market showed some resilience also, despite the dismal jobs data.
The S&P 500 on Friday managed to close just above 1,300, keeping the April low just under 1,295 as strong near-term support.
To be sure, not all investors see just a soft patch in the economic data. Friday's payrolls report confirmed the loss of momentum in the economy, which was already flagged by other data from consumer spending to manufacturing
The Jakarta Composite Index edged higher for a third successive day on Friday, boosted by the financial sector as continued easing inflation aided confidence in the banking industry.
“Monthly inflation in May was 0.12 percent, while the historical inflation for May was 0.3 percent in the last four years,” said Janson Nasrial, an analyst at AmCapital. “This is definitely a positive catalyst for the banking sector.”
The JCI gained 6.26 points, or 0.16 percent, to close at Rp 3,844.02. More than 12.56 billion shares worth Rp 4.56 trillion ($533.5 million) changed hands, with decliners outnumbering gainers 132 to 80. The index advanced 0.3 percent for the week.
Trading volume was unusually heavy despite Friday being declared a national day of leave by the central government.
Janson said the volume was high because foreign investors were increasingly turning to the Indonesian market as markets in developed countries were not as attractive. Data from the Indonesia Stock Exchange indicated there was net foreign buying of Rp 95 billion on Friday.
The financial and consumer goods sectors led the gains on Friday. Financial stocks were up 0.76 percent while consumer goods stocks rose 0.25 percent.
Bank Rakyat Indonesia, the nation’s second-largest bank by assets, was the top gainer of the day, rising 4 percent to trade at Rp 6,500. It received a boost on Tuesday as Investor Magazine, which like the Jakarta Globe is part of the Berita Satu Media Group, named it the country’s top bank among banks with more than Rp 100 trillion in assets. Bank Central Asia, Indonesia’s largest bank by market share, gained 0.7 percent to Rp 7,150.
Unilever, a consumer goods company, advanced 1.01 percent to Rp 14,950. London Sumatera Plantation, a plantation unit of Indofood Group, rose 1.04 percent to Rp 2,425. Palm oil futures gained 1.8 percent to 3,465 per metric ton ($1,151), advancing for the second successive day.
The rupiah strengthened 0.2 percent to trade at 8,528 to the US dollar as the market closed on Friday. It has advanced 0.5 percent this week.
“Inflation is manageable and the economic outlook for the country is positive,” said Wiling Bolung, head of treasury at ANZ Panin Bank. “The market is bullish on the rupiah and investment in government bonds is strong.”
Share prices on Bursa Malaysia were lower, in early trade, this morning as investors were influenced by the downtrend on Wall Street last Friday, dealers said.
At 9.48 am, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) stood at 1,555.24, down 4.61 points after opening 3.61 points lower at 1,556.24.
The Finance Index shed 5.34 points to 14,496.72, Plantation Index eased 15.49 points to 7,785.90 while the Industrial Index added 0.02 of a point to 2,749.75.
The FTSE Bursa Malaysia Emas Index declined 23.16 points to 10,672.56, the Ace Index shed 1.21 points to 4,226.30 and the Mid 70 Index dropped 7.48 points to 11,532.96.
Trading volume stood at 1.07 million shares, worth RM60.82 million, with 108 gainers, 185 losers while 170 counters were unchanged and 999 others were untraded.
For actives, Tejari added half-a-sen to 7.5 sen, Scomi Group added two sen to 30.5 sen and Tejari Warrant added half-a-sen to 4.5 sen.
Among heavyweights, Maybank was flat at RM8.72, CIMB eased three sen to RM8.31 and Tenaga lost one sen to RM6.98
Philippines share prices may move sideways in the absence of local catalysts to bring the index higher and amid lingering conerns overseas.
”The index will still be consolidating [this] week and we’ll see more of the swings we have experienced [in the previous] week,” said Maria Arlysa Narciso of AB Capital Securities Inc.
The market is expected to remain confined within its trading range of 4,200 to 4,340, its support and resistance levels, respectively, and the divergence in the PSEi’s technical indicators also suggest market lacks conviction to move on either direction, Narciso added.
Week on week, the PSEi advanced 23 points or 0.54 percent as some local investors opted to hunt for bargains following the decline in previous sessions.
The drivers for the index’s direction will be the same companies which have been in the spotlight lately such as San Miguel Corp., Philippine Long Distance Telephone Co., Philex Mining Corp., Manila Mining Corp. and Lepanto Consolidated Mining Co.
”Locally, there is no strong factor that seem to be favorable enough to lead the PSEi firmly higher. While economic data is highly monitored, there is no lasting and drastic effect to the market and to the investors’ sentiments,” Narciso said.
Local investor sentiment remains clouded by a stream of concerns in the global markets.
”The gentle tug of the foreign markets will still be felt especially with the debt worries and economic recovery efforts of the major countries,” said Narciso.
On Friday, the Dow Jones Industrial Average lost 97.29 points or 0.80 percent to 12,151.26 following a weak jobs report showing employers added the fewest number of new workers in eight months.
The week’s close of the PSEi at 4,297.62 highlights the market’s vulnerability, an analyst said. ”If a break above the 4,300 fails to materialize, expect further weakness toward the 4,150 to 4,250 levels in the near-term,” said Jonathan Ravelas, BDO chief market strategist.
Singapore shares opened higher on Monday, with the benchmark Straits Times Index at 3,133.06 in early trade, down 0.40 percent, or 12.61 points.
Around 71 million shares exchanged hands.
Losers beat gainers 63 to 26.
The Stock Exchange of Thailand index last week dropped to test the technical support line at 1,055 points with light trading volume for the whole week and no new positive factors. The SET index moved sideways between 1,056.34 and 1,082.13 points and closed on Friday at 1,057.86 points, down 0.86 percent. Foreign investors continued as net sellers of 4.519 billion baht, retail investors were net buyers of 5.815 billion, local institutions were net sellers of 2.538 billion and brokers net buyers of 1.237 billion baht.
Big movers: Khonburi Sugar (KBS), which entered the SET on May 27 with an IPO price of 9.10 baht, remained in the top 10 in both volume and value, due to its competitive price, according to analysts. With trade of 1.33 billion baht, the shares closed last Friday at 11.10 baht, up 19.35 percent from 9.30 baht the previous week.
- The specialty chemical maker Union Intraco Plc (UIC) made a spectacular debut on Friday on the Market for Alternative Investment, closing at 5.50 baht against an IPO price of 1.92.
- Jasmine International (JAS) topped the volume table with 597 million shares changing hands last week on speculation in treasury stocks. Last Friday was the last day its treasury stocks of 155.24 million shares or 2.10% of paid-up capital were able to trade on the SET. JAS shares closed last week at 2.90 baht, down 1.36 percent from 2.94 baht a week earlier.
Moody's Investors Service will put the US government's prized AAA credit rating under review for a downgrade unless there is a progress on increasing the debt limit by the middle of next month. Also, there is a risk of downgrades for big US banks including Bank of America, Citigroup and Wells Fargo.
Stocks to Watch: KGI Securities recommends investors continue to buy stocks that stand to benefit from election-related spending, such as BEC, MAJOR, MAKRO and BIGC.
- Asia Plus Securities said it expected BCP and TPC to be added to the SET50, replacing DCC and KK, in the second half of this year. Stocks in the SET50 tend to return about 7 percent when purchased 3-4 weeks before being added to the blue-chip index calculation, the brokerage says. For the SET100, ASP forecast the new entrants would be PTL, AJ, SC, SF and MCS. They would replace KYE, ROJANA, TSTH, CCET and PDI. SET100 stocks tend to return about 2.6 percent when bought two weeks before the revised index calculation, it says.
Shares rose in four out of five trading sessions on the HCM City Stock Exchange last week, with the VN-Index closing up on Friday by nearly 8 percent over the previous week's close to 443.41 points.
It was Friday's session that ended up snapping six consecutive sessions of gains, with both the volume and value of trades soaring on heavy profit-taking.
Overall, however, trades remained sluggish last week, with the average daily trading value dropping 10 per cent from the previous week to just VND615 billion (US$30 million) on an average volume of 33 million shares per day.
Market gains were initially motivated by familiar large caps such as insurer Bao Viet Holdings (BVH), food producer Masan Group (MSN) and property developers Vincom (VIC) and VinpearlLand (VPL) but then spread to most shares across-the-board, with over 55 per cent of codes hitting their ceiling prices on Wednesday and Thursday.
Investor confidence improved significantly on news on Tuesday that the Ministry of Finance had issued a new circular allowing margin trading, multiple trading accounts and intra-day trading, effective August 1.
Nguyen Quang Minh, a stock analyst with the financial website vietstock.vn, believed recent market advances had been stimulated by the leaked information of new eased trading rules before the ministry's move was publicly announced.
But this good news failed to sustain the market on Friday when people rushed to sell shares to realise cash profits after six successive rising sessions. The VN-Index declined 1.6 percent while both trading volume and value rose over 34 percent.
However, Thang Long Securities Co chief economist Pham The Anh believed that investors had already been using multiple trading accounts to buy and sell securities and had borrowed money from brokerages to invest in stocks through co-operation contracts. The circular therefore simply legalised what had already been taking place on the market.
"In my opinion, medium- and long-term growth should come from economic stability and positive business results of listed companies rather than technical or administrative measures," Anh said, although he conceded that the circular would help create a more level playing field for both investors and brokerages and could therefore help boost the liquidity of shares.
Trading in the coming week would be heavily influenced by investor psychology as many still had doubts about the recent rebound and feared that a "bull trap" would appear, Minh said, but he believed the circular would have additional positive impact on investor sentiment.
"Besides, the market is still very attractive, with more than 77 percent of shares priced below book value and over 45 percent being trading below their face value," Minh said.
On the Hanoi Stock Exchange, the HNX-Index also climbed by 4.29 percent over the course of last week to close on Friday at 73.87 points, although all of the gains were concentrated in just two sessions. Average daily trading value reached nearly VND390 billion ($18.9 million) on an average volume of 36.3 million shares, almost unchanged from the previous week.
Foreign investors contributed to the market rise last week, continuing to be net buyers on both exchanges and picking up a net of over 10 million shares worth a net of VND258 billion ($12.5 million).
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