Asian markets swoon

Asian markets look bearish today, with regional sentiments weighed down by overnight underperformance.

Japanese traders
Source: Bloomberg

Japan tumbled 1.8% as a stronger Yen spurred an exodus of long positions. Nikkei closed below 20,100 with 95% of the component stocks ending lower.

China gave up some of the gains from Monday. Typically, the weak inflation numbers could raise expectations of stimulus bets, but that has not happened today as the MSCI event loomed overhead.

The China A50 failed to hold on to the 15,000 handle, closing down at -1.7%, while the CSI 300 retreated towards 5300.

The consensus view for the MSCI review is tight, although it seems to incline towards the view that China A-shares may not see any inclusion. Therefore, the risk tomorrow may very well lean to the downside, should that scenario play out.

STI bears still out in force

The Straits Times Index (STI) opened to more sellers today although it should not be surprising given the current downtrend motion. The index inched closer to key support at 3300, this was dragged by declines in Jardine-related counters and dogged weakness in Noble shares.

The underlying problem in the Singapore stock market of lacklustre interests continued to plague the STI; there just isn’t any strong catalyst for Singapore equities. The STI has fallen 6.5% over the past seven weeks and the overall technical set-up is trending to the bearish side.

MACD continues to show a widening difference, heading towards -13.0. The 14-day RSI remained below the 50 level, slipping into oversold territory. The STI is also testing the lower Bollinger band. Some analysts may take this to mean that further downside should start to see some support.

The immediate key support is at 3300 but the strong bearish momentum could persist, and a close below 3300 will bring the 2015 lows of 3267.89 into focus. Any bargain hunters should wait until a clear bullish reversal is seen, while fresh shorts may be considered during rebounds.

SGX needs to tackle liquidity issue

The Singapore Exchange (SGX) has been battling weak trading volumes for a couple of years now. The several initiatives, though probably in the right direction, have not really taken off. We have also seen efforts to boost liquidity by introducing measures to encourage off-exchange trading.

The SGX previously identified high-frequency trading (HFT) as a growth initiative for its securities business soon after its proposed takeover bid of ASX was blocked by the Australian government.

There was no further development on that front, and silence on when ‘appropriate safeguards’ will be established to commence HFT. The feet-dragging is likely due to the controversial nature of HFT where there are two sides of the coin in terms of how it actually benefits market liquidity.

Confronting the dearth of liquidity in the local market and the struggle to attract new listings, the incoming CEO, Loh Boon Chye, has his work cut out for him. Compounding the issue is a huge interest in China and Hong Kong stock markets as they continue to bulk up its equity markets with new IPOs.

According to Dealogic, Hong Kong has raised USD 12.6 billion worth of new shares so far this year, in comparison, new IPOs in Singapore amounted to a tiny USD 41 million over the same period.

Perhaps the key challenge for CEO-designate Loh is to balance the interests of SGX as a listed company and Singapore capital markets. The bourse operator needs to look at strategies that not only improve their profitability, but also more importantly, the development and deepening of the city-state’s capital market.

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