BT: Equity markets lose 5-26% in a month of chaos - 10 Jun 2006

Business Times - 10 Jun 2006

Equity markets lose 5-26% in a month of chaos

By CONRAD TAN

(SINGAPORE) Stock markets in the region and around the world have lost between 5 and 26 per cent of their value since equities began their downward slide a month ago.

Many regional indices, including the Straits Times Index (STI), have also lost all their gains made in the first quarter, as markets start to feel real pain from higher oil prices and the prospect of further interest rate rises.

But some analysts are holding out for a relatively quick turnaround, sustained by solid corporate earnings. The recent sell-off has been blamed on large investors such as hedge funds and investment banks keen to unwind positions in a falling market.

Yesterday, OCBC Investment Research head Carmen Lee said: 'This round (of selling) is different from previous rounds. A lot of the big-cap stocks really did deliver very good earnings in the first quarter. I'm not sure if this can be sustained in the second quarter, but I don't think momentum is so weak that you need a massive sell-down in the market. Once prices correct a little bit more, valuations should compel value investors to relook at the market.' Recent falls were driven by 'a lot of overseas factors', she said. 'I think US inflation fears have become a little more real.'

India's key Sensex Index is the biggest loser in the past month in percentage terms, having shed almost 26 per cent of its value since May 9, when most markets were at or near their recent peaks. The Jakarta Composite Index has also been battered, and is now 16.8 per cent below its May 9 level of 1,532.62 points.

Up north, equity markets in Korea, Japan, Taiwan and Hong Kong also took a blow, especially after Thursday's massive sell-down across all markets, including Singapore, where the STI fell 2.5 per cent.

Since the start of the year, South Korea has suffered the most, the Kospi having lost 10.4 per cent year-to-date. The index has been plummeting almost daily since it peaked at 1,451.09 points on May 10. Yesterday it closed at 1,235.65 points, after rebounding one per cent.

Japan's Nikkei-225 Index is a close second, having lost 8.4 per cent since the start of the year. On Thursday it plunged more than 3 per cent, ending below 15,000 points for the first time since November. This week, the Nikkei fell four days in a row, after Monday's arrest of fund manager Yoshiaki Murakami on charges of insider dealing.

Other indices in negative territory compared with the start of 2006 are Taiwan's Taiex, Singapore's STI and India's Sensex. The Malaysian bourse, however, has proved resilient. The Kuala Lumpur Composite Index is still 1.7 per cent up from the start of the year, although it shed 5.3 per cent in value in the past month.

The Singapore Exchange's own stock has also taken a hit. Its shares, last traded at $3.60, are now 22 per cent cheaper than a month ago. In a note on Thursday, UOB-Kay Hian's Leng Seng Choon said further weakness in volume is expected in the next few weeks, aggravated by the start of football season.

Yesterday, most regional markets recovered slightly, led by a 0.8 per cent rise in the Nikkei. The STI rose 1.8 per cent to 2,337.44 points, while India's Sensex rebounded by 5.5 per cent, its largest gain since May 2004.

A report by Macquarie Research earlier this week said: 'We have a 12-month STI target of 2,700. Given the market weakness and concerns over higher interest rates and peaking global growth, we think the STI will range between 2,300 and 2,600 for the rest of 2006.'

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