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Asian stocks fail to keep gains after fortnight of turmoil
ASIAN bourses wrapped up a tumultuous week on a sombre note on Friday, after they struggled - and failed - to hold on to early gains.
It mattered little that US stocks gained overnight as the cocktail of risk factors - volatility in Chinese equities and the yuan, fear of global recession, slumping oil prices and currency wars - continued to weigh on sentiments.
OCBC Investment research head Carmen Lee said: "Volatility is likely to persist, due to several key uncertainties. Besides the Chinese market rout, oil price continues to head lower with some recent market experts projecting even lower levels of US$15 to US$20 per barrel." Global markets have suffered considerable pain in the first two weeks of this new year, with China's Shanghai Composite down 18 per cent and hitting a one-year low, broader Asia including Japan down 2 to 10 per cent, and US and European stocks having shed 6 and 8 per cent respectively.
Energy plays and commodity currencies took another pounding, given bearish oil prices which traded at below US$30 a barrel this week - the first time in a decade - on renewed pressure, with the looming additional supply from Iran. The VIX index, a forward-looking indicator of volatility in markets - or a gauge of investors' fear, as some would say - hit a three-month high of 27 this week; it has jumped 30 per cent in the year to date.
The local market's key Straits Times Index has had a bruising start to 2016 too, plunging 9 per cent over two weeks.
The next worst performer among the Asean Five (Indonesia, Malaysia, the Philippines, Singapore and Thailand) was the Philippines, where the index has shed 7 per cent.
Roger Tan, chief executive of Voyage Research, said: "The weak domestic market, caused by tight monetary policy and poor export outlook, are adding to fear that the Singapore economy is in danger of going into recession in 2016."
Nomura Research said that a slowing China would affect Singapore the most, followed by Malaysia, although for now, the house deems the local bourse an "overweight", partly because the selloff involving the banking stocks on concerns of deteriorating asset quality may be "overdone".
Even so, as far as the broader Asean index goes, on a relative scale, they were not the biggest losers. Nomura Research said: "Asean has held up better so far."
As of Friday, the MSCI Asean had fallen 6 per cent in the year to date - a rocky start, but less so than the 8.5 per cent dip in the MSCI Asia-Pacific index, a loss of nearly 9 per cent in the MSCI Emerging Markets Index and 7 per cent in the MSCI World.
No one doubts the impact of a slowing China on the world, especially because it accounts for 17 per cent of global GDP, but except for a few extremely gloomy forecasts, most, like Schroders' Gareth Isaac, do not expect a "cataclysmic 2008-style credit crunch" to happen.
"But that doesn't mean that we are not concerned. There are significant risks," he said. "China is attempting to make the transition from a manufacturing-led economy to a service-led economy - a transition that took the UK generations - a decade or so. That process is not going to be without difficulty, and the Chinese authorities are learning as they go. Mistakes will happen," he added.