Expect more volatility

Wednesday, 02 September 2009 17:25

Asian stock markets traded on a weaker footing on Wednesday, Sept 2. Investor sentiment was, no doubt, hurt by Wall Street’s overnight losses. Global equities could be in for more volatility in the days ahead.

Japan’s Nikkei index finished 2.4% lower while the bellwether indices in Hong Kong and Singapore also closed in the red. Positively, the Shanghai Composite index, which triggered a wave of panic selling when plunged 6.7% on Monday, closed higher for the day.

The Dow Jones Industrial Average dropped nearly 2% overnight – despite a clutch of upbeat economic data, which include the first gain in the US manufacturing sector in 19 months. In a separate report, pending home sales in the month of August rose to the highest level since June 2007.

But the upbeat data failed to spur buying interest. Investors, having chased share prices sharply higher over the past few months, are growing worried that valuations have been stretched too far. There may also be a psychological element involved given that the month of September is traditionally a difficult month for equities.

There is no doubt that global economic growth will strengthen in 3Q09. But some investors are worried that the recovery may not be sustainable going into the last quarter of the year – after the impact of inventory rebuilding and government stimulus plans fade. For instance, August car sales in the US jumped strongly as buyers rushed to take advantage of the government’s cash rebate scheme, which has since expired.

The FBM KLCI opened weaker and stayed in the red throughout the trading day although losses were relatively limited. The benchmark index closed three points lower at 1,168. Some of the bigger losers include Genting, Bursa Malaysia and KL Kepong.

Market breadth too was in the red the entire trading day. At the close, losers outnumbered gainers by a margin of about seven to three. About 519 million shares were traded.