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Thursday, 25 June 2009

The tide recedes for Asian equities

Goh Eng Yeow examines the stock market's outlook going forward

INVESTING one’s hard-earned nesteggs is serious business.

Still, I must say that I am pleasantly surprised to get so many responses, thanking me for my Sunday Times column "Lessons from the financial crisis" two weeks ago.

Quite a number of readers have also noted that I am an avid tracker of the flow of funds in and out of the various Asian markets. They want to know where they can also find the data to do likewise.

I replied to all the queries by referring to a blog which I wrote last month. I get my report on fund flows from Citigroup every Monday and it has turned out to be one of my most important reading materials for the week.

And readers are reaping the benefit of getting privileged information which only big-time fund managers have access to, when I subsequently reproduce the report as an article.

Today, I wrote another fund flow piece in The Straits Times to report that there had been a net flow of money out of greater China funds last week – the first time this had occurred since March when regional markets bottomed out.

I must thank Citigroup strategist Elaine Chu for kindly sharing the raw data on the fund flows with me. The article would have been impossible to write otherwise.

Going by the manner in which inflow of funds into China funds has been slowing to a trickle, it is only be a matter of weeks before foreign investors start taking money out of them as well.

This will have implications on the Singapore, Hong Kong and Taiwan bourses where a large number of listed firms also have heavy exposure to mainland China.

It looks like the trigger for any sell-off on regional equities will come from Wall Street whose fund managers may need to trim their exposure in Asia in order to offset losses back home.

The only bright spot in the world of equities at the moment is Asia and foreign fund managers will be desperate to display some good results to show to their investors.

With the half-year drawing to a close next Tuesday, some window-dressing is still possible to shore up stock prices at close to their current levels.

After that, it is anyone’s guess how regional stock markets may move.

We will be entering a period which is traditionally shrouded in uncertainties.

August has traditionally been a jittery period for the stock market. The US sub-prime crisis started in August 2007. The seeds for Lehman Brothers’ destruction were sown in August last year.

Looking back over the past 100 years, the First World War started officially on August 1, 1914, while the Second World War commenced at end-August, 1939.

Also coinciding with this uncertain period is the seventh month on the Chinese lunar calendar which starts from August 20 this year – the so-called ghost month.

Even though we live in the space age and has put men on the moon, some deep-seated beliefs still hold fast. Both the property and stock market traditionally slow down during this period and this year will be no exception.

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