Friday, June 4, 2010

World markets start off June in the red

KUALA LUMPUR: Asian, European and US markets started off June in the red with investors cashing out as a slowdown in Asian manufacturing added to doubts about the pace of an economic recovery.

Analysts painted a gloomy outlook on the horizon for global markets, cautioning investors not to be lulled into a false sense of complacency as the massive European debt problems still persist.

However, secretary-general of the Organisation for Economic Cooperation and Development (OECD) Angel Gurria gave an assurance the world should not slip into double-dip recession despite austerity measures in some major economies.

Hong Kong's Hang Seng Index fell 1.36% to 19,496.95, Taiwan's Taiex Index lost 1.15% to 7,289.33, the Shanghai Composite Index declined 0.92% to 2,568.28, the South Korean Kospi shed 0.66% to 1,630.4 while Singapore's Straits Times Index fell 1.35% to 2,715.44.

European markets were also in the red, falling between 2.5% and 3.5% while US stocks opened weaker. The Dow Jones Industrial Average dropped 0.73% to 10,062.72. The Standard & Poor's 500 Index fell 0.83% to 1,080.35. The Nasdaq Composite Index declined 0.68% to 2,241.77

At Bursa Malaysia, the FBM KLCI clawed back late in the afternoon session to limit its loss to just 2.04 points or 0.16% lower at 1,282.97. It had earlier fallen as much as 10.45 points to an intra-day low of 1,274.56.

Volume was 653.23 million shares valued at RM758.3 million. Losers led gainers by 487 to 200, while 214 counters traded unchanged.

Year to date (YTD), most key Asian markets have suffered losses, with the Shanghai Composite Index down 21.63%, the Taiex 10.98%, the Hang Seng 10.86%, the Nikkei 225 7.91%, the Kospi 3.11%, and the STI 6.29%. The FBM KLCI stayed in the black and was up 0.8% YTD.

A survey showed manufacturing activity in the eurozone expanded in May at a considerably more sluggish pace than in April, while separate data showed the pace of China's factory output eased last month.

The dismal outlook was offset by the latest data from the US. The country's CONSTRUCTION [] spending rose unexpectedly in April, recording its largest monthly increase in nearly 10 years.

The US manufacturing sector expanded in May for a 10th straight month but at a slower pace than in April while employment rose slightly to its best level in six years, according to Reuters.

MIDF Research head Zulkifli Hamzah said that in a weak market environment, it was always hard for the Malaysian market to decouple from its regional counterparts.

He said comments by Nouriel Roubini, the New York University professor who predicted the global financial crisis, placed the Asian markets in perspective.

'Roubini said that the Brazilian, Chinese and Indian economies may be overheating and developing asset bubbles. In this regard, there are signs that the property bubble in China is bursting given that Chinese property stocks declined today,' he said.

The Shanghai Securities News reported that real estate closings in Beijing, Shanghai and Shenzhen in May plunged as contract numbers dropped by as much as 70% from April.

'As of close today at 1,283 points, the KLCI had rebounded 3.1% from a recent intra-day low of 1,244. It is a good excuse for investors to take profit and wait for the market to bottom out.

'After all, the market is heading into the World Cup month, during which trading volume had historically shrunk by as much as 50%,' said Zulkifli.

Meanwhile, Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi said the European sovereign debt problems had not gone away, and that short-term market liquidity had returned to buy up oversold stocks that have plunged over the last fortnight.

'Maintain a wary eye over Europe, and clients should protect their positions with a relevant stop-loss (in case of any further blow ups in Europe that will affect Asia-Pacific markets including Malaysia),' said Lee in a note to clients on TUesday, June 1.

At Bursa Malaysia on Tuesday, among the major losers were Tanjong plc that fell 66 sen to RM17.34, HONG LEONG BANK BHD [] down 15 sen to RM8.40, MISC BHD [] down eight sen to RM8.35 and TENAGA NASIONAL BHD [] down five sen to RM8.30.

Meanwhile, SIME DARBY BHD [], Axiata Group Bhd and TELEKOM MALAYSIA BHD [] lost three sen each to RM7.72, RM3.74 and RM3.32, respectively.

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