The Great Singapore Sales has started - in SGX

Business Times - 25 May 2006

MARKET CLOSE
Not for the faint-hearted

By R SIVANITHY

IF you don't have nerves of steel or are unable to react quickly to rapid changes, you should not be in this market. Intraday traders who rely heavily on short-selling as part of their daily routine have dominated proceedings over the past week and were probably at the forefront again today, capitalising on weak regional sentiment and the inevitable waves of margin calls and forced-selling that made for another alarmingly volatile - and ultimately - weak session.

In what is becoming a pattern, the Straits Times Index opened with a slight gain, then promptly fell through all of its technical supports when it lost 60 points to 2,376, before short-covering helped cut the loss to 32.1 points for a close of 2,404.45.

Although the selling was in line with weakness in regional leaders Japan and Hong Kong, dealers said it was exacerbated by large-scale margin calls and forced-selling that picked up pace after lunch.

The outcome was a session in which the broad market registered just 55 rises, excluding warrants and bonds, versus 376 falls. It also a session in which brokers used unprintable language to describe the state of affairs the market finds itself in. Suffice it to say that retail clients are said to be reeling from heavy losses sustained over the past fortnight. 'At the moment it's mainly fear ruling the market, with greed taking a backseat,' said a dealer.

Within the ST Index, only five stocks rose, versus 41 falls. CapitaLand's 18-cent slide to $4.32 cut 4.1 points off the index, closely followed by a four-cent loss by Singapore Telecom to $2.51. Among the banks, DBS and OCBC lost ground, while the Singapore Exchange's shares broke below $4 when they plunged 18 cents to $3.86.

Heart stent firm Biosensors was possibly one victim of margin calls, crashing 21.5 cents or 21 per cent to 81.5 cents on volume of 43.4 million shares. The intraday loss was much worse - the counter touched 71.5 cents, a drop of 31 per cent.

China stocks also took a beating - again, possibly because of margin calls - with China Fish, China Sun, China Milk, China Hongxing and Celestial Nutrifood all recording significant losses.

On the outlook, BCA Research said in its latest Emerging Markets Strategy that although a downshift in interest rate expectations and oversold conditions could spur a reflex rally in stocks, it'will be comfortable selling into this rally as the global growth outlook is deteriorating'.

Although BCA believes global inflation is well-contained, it said alarm bells are ringing on the growth front. 'Global growth has peaked and will slow. Specifically, the two main engines of the global economy, US consumers and Chinese investment, are set to moderate.'

According to the independent research house: 'The current environment is bullish for bonds and bearish for overextended reflation trades such as commodities, spread products and risky segments within equity markets. The impact on broad equity indices is ambiguous - while slowing growth is negative for earnings, the rising odds of a peak in US and global interest rates is positive for share prices.'

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