Week when selling holds sway

by R SIVANITHY (6 Dec)

SHOCKING news that the US economy has been in a recession - defined as a general contraction in economic activity rather than two consecutive quarters of declines - for a year now, the failure of US carmakers to convince the government to bail them out and a sharp drop in trading volume were three of the main features of the past week.

The fourth was the 'buy the index in the morning, and sell in the afternoon' trading pattern that was evident in the final three days of the week, each time because of expectations that Wall Street would tank later that evening.

As it turned out, though, the selling outweighed the buying, insofar as the STI was concerned, the benchmark ending the week 15.49 points higher yesterday but losing 73 points or 4.2 per cent over the five days to 1,659.17.

This wiped out the 70 points gained over the previous week, which was mostly likely through month-end window-dressing.

Blue chips in play throughout this week included SingTel following an Investor Day, the banks and the thinly traded Jardine group. In yesterday's session, for example, Jardine Matheson's US$0.44 rise to US$16.24 came with just 258,000 shares traded but added 2.2 points to the STI.

Property stocks had a poor five days, the FT Real Estate Index losing almost 6 per cent. Financials were not far behind with the FT Financials Index dropping about 5 per cent.

Other than commodities, the main sector in play was a heavily battered China segment led by an oddly resurgent Cosco Corp that gained 16 cents or 23 per cent over the week to 87 cents despite a slew of 'sell' calls following a large order cancellation.

The bulk of daily volume was generated by brokers and house traders, with general public participation virtually zero. Yesterday's turnover of 867 million units worth $747 million was roughly in line with the week's average and low enough to suggest that any investor with money to invest has probably already gone on holiday.

More sobering outlook reports were issued over the week, among them Goldman Sachs' (GS) 'Many Rivers to Cross' and UBS Investment Research's (UBSIR) 'Navigating a Recession'.

The former said risks to growth are to the downside, notwithstanding countervailing policy actions, and this will increase risks to earnings. 'We expect a global recession in 2009 . . . we feel there are sufficient reasons to examine the possibility that this downturn will be more prolonged than currently expected.

These include (a) the negative momentum of consensus forecasts, (b) the size of the debt burden in the US and (c) the deleveraging experiences of Japan and Sweden in the 1990s,' said GS.

UBSIR said it thinks a rally of 15-20 per cent in Q1 '09 is possible purely because markets are oversold but its central thesis is for a 'grim economic outlook and high risk aversion'.

It said the market has not priced in the success of the two integrated resorts but, on the downside, investors should watch the job market - where UBSIR expects 30,000 jobs to be lost during the year.

On a more positive note, the broker said it has a fair value of 2,100 for the STI at year-end.

-Research Report by R SIVANITHY (6 Dec)