Stocks drop as investors stay cautious

Trading sentiment on Asian stock markets turned weaker today. Bellwether indices in key markets failed to hang on to early gains to close in the red. Chinese stocks were among the worst performing, with the Shanghai Composite Index dropping 2.4%.

Investors are worried that the Chinese government’s move to tighten liquidity will dampen the country’s rapid growth. The People’s Bank of China has raised the statutory requirements for banks twice so far this year. Anecdotal evidence indicates that bank loans are slowing down. Some also worry that the government will soon raise interest rates to counter anticipated price inflation.

With the US and Europe still registering tepid growth, investors are wary that a slowdown in China will suck the momentum out of the still fragile global economic recovery.

Yesterday, the US Federal Reserve indicated that while things are improving in the world’s largest economy, the recovery would be slow in view of the weak demand for loans and high unemployment rate. Overnight, US stocks, again, closed off their intra-day high as investors remained uncertain on the near-term outlook.

Reflecting prevailing global uncertainty, shares on Bursa Malaysia continued to drift in directionless trading. The FBM KLCI stayed within a tight trading range all day before closing two points lower at 1,284.1.

There were roughly seven losing stocks for every five gaining ones at the close. Atlan, Shell Refining and KFC were among the bigger gainers for the day. At the other end, AMMB, Genting, CIMB, Titan and Jaks Resources were some of the notable losers.

Trading volume dropped to less than 727 million shares, down from the daily average of roughly 918 million shares transacted in the preceding three days. Mulpha-OR was the most actively traded counter for the day. Other actives include Axiata, Maybank, MRCB and AMMB.