Markets down as recovery stutters

Written by Fong Min Hun
Friday, 30 October 2009 00:41

KUALA LUMPUR: Asian bourses succumbed to selling pressure on Oct 29, continuing a three-day losing streak and reminding investors that the global economy is not out of the woods yet.

Disappointing US economic data and company earnings prompted investors to take profit, dragging the Dow Jones Industrial Average index 1.21% lower by the close of Oct 28’s trade on Wall Street. The jitters spread to Asia and Europe on Oct 29, sending all Asian markets into the red zone.

China markets were among the hardest-hit major Asian bourses, with Shanghai and Shenzhen indices falling 2.34% and 2.17% respectively while Hong Kong’s Hang Seng lost 2.28%.

The FBM KLCI was among the least affected benchmarks, dipping 7.3 points or 0.58% to close at 1,241.75 points. The local bourse was mostly weighed down by PLANTATION [] and banking counters, which had picked up considerably in recent weeks.

The catalysts for the reversal in the market trends included an unexpected fall in US housing data for September, raising doubts about the strength of recovery in the housing sector and economy in general, as the housing sector is traditionally an indicator for the health of the US economy.

Market sentiments were further weakened by lower-than-expected profits at major corporations such as Petrochina Co and the Australia & New Zealand Banking Group Ltd (ANZ), which has an equity stake in AMMB HOLDINGS BHD [].

However, local heads of equities research believe the blip in the markets did not portend an end to their upward momentum.

“It’s not the start of a bear market,” UOB Kay Hian (M) Holdings Sdn Bhd head of research Vincent Khoo told The Edge Financial Daily. “My sense is that it’s part of a healthy profit-taking and consolidation since global markets have been essentially going north since March without a break.”

There had not been a meaningful retracement in the market since March, and this correction, which could stretch into early next week, was timely, Khoo added. The market, he said, had advanced “way ahead” of a strong sustained recovery, a view that was shared by Chris Eng, the head of research at OSK Research.

“The market has followed a V-shaped recovery too far above the economic recovery, and we were expecting to see a retracement sometime in the middle of next year,” Eng said.

The market correction came even as major brokerages called for a sharper recovery in Asia. Last Wednesday, Singapore-based DBS Bank’s economist David Carbon said in a note that Asia’s V-shaped recovery may be the sharpest on record, although it may turn into a “square-root-shaped recovery” should it start hovering sideways.

However, Eng believed the consensus on Asia’s recovery has been too bullish. OSK Research was still taking a more conservative stance on the recovery, he said, adding he expected more profit-taking activities over the next few trading days.

Khoo took a similar stance, saying that a V-shaped recovery for the Asian economy might not be realistic as it was still very much reliant on the US recovery.

“We have seen a fairly robust recovery in exports but that was inventory-led,” he said. “Asia might be a bit more resilient but there needs to be a meaningful export recovery.”