Dow rebound may not bring cheer

Dow rebound may not bring cheer

SINGAPORE - While Wall Street cheered the better-than-expected November US job report last Friday, its exuberance may not rub off on the Singapore bourse.

Indeed, traders have observed that when United States stocks go on the upswing, local blue chips fail to enjoy any uplift. But if Wall Street comes under selling pressure for whatever reason, there is sure to be a knee-jerk sell-off here.

Last week, Wall Street losses caused the Straits Times Index (STI) to fall by almost 2 per cent for the week. But the Dow Jones Industrial Average's 200-point rebound on Friday may not bring cheer when the Singapore market opens for trading today.

Indeed, the fear is that the 203,000 jobs gained in the US last month, which beat market expectations of 185,000 jobs, may increase the chance that the central bank will slow its US$85-billion (S$106-billion) monthly bond purchases when it holds its monetary-policy meeting next week.

This may, in turn, trigger a further sell-off of local counters and inflict more damage on the STI, which is already down 1.96 per cent for the year. That would raise the likelihood that the local index will end the year in the red - for the first time since 2008.

For dealers, the soured appetite for stocks will only mean a further slowdown in trading activity. As it is, overall turnover has fallen sharply since October, when brokerages imposed trading curbs on a big number of penny stocks, after the spectacular crash in Asiasons Capital, Blumont Group and LionGold Corp wiped more than $10 billion off the value of the stock market.

Reflecting the more cautious mood across the region, Citi Investment Research's latest fund-flow report shows funds that invested in emerging markets sold off about US$1.8 billion worth of stocks last week.

But market strategists such as AMP Capital's Mr Shane Oliver remain convinced that even if the US Federal Reserve does start to scale back on its vast bond-buying programme, share prices will continue to rise.

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