Sentiment tempered by uncertain US recovery, Hungry Ghost Month

SHARE prices might be rising across the globe but investors are not rushing back into the market in great numbers, leaving trading volumes stuck in the basement.

Not even the end of the World Cup could entice them back to the bourse to take up fresh positions.

And it is not as if there is a lack of good news to spark interest. Quarterly corporate results have been better than expected and booming Asian economies like Singapore and China have been racking up blistering growth numbers.

But market experts do not expect a sharp pickup in trading activity soon as Europe and the United States head into their summer holidays next month.

'It looks like the local market may continue to drift before picking up in the fourth quarter, as investors come back for the traditional year-end rally,' said Phillip Securities managing director Loh Hoon Sun.

A recent Merrill Lynch survey shows that many fund managers are holding more cash as their concerns shift from the European sovereign debt crisis to the sputtering US economic recovery. Dealers also note that traders are wary of being lured into a 'bear trap', because gains made by share prices have been achieved on sluggish trading activities. This raises the likelihood of a nasty correction if bad news suddenly emerges.

Local traders are also likely to take a breather once the Hungry Ghost Month starts in two weeks. Chinese people traditionally avoid loading up on big-ticket items like property or stock purchases during this period as it is considered inauspicious.

The only redeeming feature during this period of limbo has been that institutional investors have stopped liquidating their positions.

In its latest report tracking fund movements, Citi Investment Research notes that investors took only a net US$26 million (S$35.5 million) from global equities funds last week - a far cry from the peak weekly outflow of US$3.2 billion in the second quarter.

Investor interest is also slowly returning to Asian markets, with funds investing exclusively in regional stocks attracting US$827 million in new cash last week, it adds.

Bloomberg data shows that daily market volume on the Singapore Exchange has fallen by about 13.4 per cent to 1.29 billion shares this month from the second quarter's daily average of 1.49 billion shares. This has occurred even as the Straits Times Index approaches April's level when it hit a two-year high of 3,019.74. Daily turnover has also dwindled, down about 15 per cent to $1.31 billion from the second quarter's daily average of $1.54 billion.

Still, in terms of trading activity, Singapore has not slowed as much as other major bourses, which have witnessed a more precipitous drop in volume and turnover.

Volume at the world's largest bourse, the New York Stock Exchange (NYSE), has fallen by 18.3 per cent to 1.16 billion shares this month from the second quarter's daily average of 1.42 billion shares. The NYSE's daily turnover has dropped by 19.4 per cent to US$31.36 billion compared with the second quarter's figure.

Over the same period, Singapore's great regional rival, the Hong Kong Stock Exchange, has seen daily volumes drop by almost one-third to 10.67 billion shares compared with the second quarter's average of 15.47 billion shares.

Hong Kong's sluggishness came despite the successful flotation of the Agricultural Bank of China, touted as the world's largest listing with US$22.1 billion raised from simultaneous launches in Hong Kong and Shanghai this month. Daily market turnover in Hong Kong this month has dropped 23.5 per cent to HK$35.55 billion (S$6 billion), compared with the second-quarter average.

- The Straits Times, 30 July 2010