Market Roundup 26-30 May 08

For the whole week, STI ended on higher grounds up an approximately 2% due to cooling crude oil prices and better than expected US Q1 GDP data. However, overall trade volume on Singapore Stock Exchange is still quite low.

We experienced weaker performance in the beginning of the week after Singapore and US reported dismal reports. The Singapore's EDB (Economic Development Board) reported a 26% decline month-on-month manufacturing output for the month of April 2008. If you are interested in the details, you may read this. US home prices continued to fall logging a record y-o-y (year-on-year) drop of 26%. US consumer confidence hit a 16 year low and this is certainly not good news. Financial big boys like Goldman Sachs Group, Lehman Brothers Holdings, Morgan Stanley earning estimates were all being slashed by analysts. US personal spending slowed in April due to inflation and fuel costs, a slump in home values and the ever deteoriating job market. There was a 4000 increase in first time jobless claims.

Bad news aside, we do have encouraging news. US durable goods for the month of April reported stronger than expected. US Q1 (first-quarter) GDP increased at 0.9% which exceed market expectations. This suggested a recession in US can be avoided. US ended almost flat down 0.06%.

Market Outlook

As usual, inflation remains most crucial and is likely to contribute largely to global markets sentiments. If you watched Friday's evening news on TV, inflation related news seem to flood the business segment. Even the former US Federal Reserve chairman, Alan Greenspan, mentioned inflation is a greater threat than speculative bubbles. We are not sure when will profit taking on oil stop but one likely scenario is oil prices is to likely to go up after the Goldman Sachs Group (GS) predicted a possibility of US$200 crude oil per barrel. This sounds rather scary and I cannot imagine how many street protests will there be. There are already many protests going on in the world even with US$130 crude oil.

The China market is also not doing very well either. A series of natural disasters have added onto the already many problems caused by inflation. The Chinese goverment has just announced a regulatory measure on their telecom (mobile) market to help smaller players. This resulted in China Mobile (largest mobile operator in China) share values to plunge 8%. Many fund managers have seen China Mobile as a defensive stock and I believe many funds that have investments on China are likely to have the stock as their top 10 holdings. These funds should be affected. I am not saying the move by the Chinese goverment is bad but at least, it is going have an impact in the short to mid term.

Vietnam is also not doing very well. Reports show Vietnam is heading towards a currency crisis similar to that of Thailand's baht in 1997. In 1997, we experienced the Asian Financial Crisis. These reports can get quite scary if you were to read them. If you are interested, you may read the report here.