Markets stay stoic as volatility rocks stocks

Singapore

THE rude return of market volatility is no reason to trade dollars for cowrie shells in a bet on the market's collapse, according to stock watchers.

Despite Monday's overnight Wall Street plunge, as well as the corresponding tumbles in Asia on Tuesday, Chicken Little's probably still the lone bird squawking about a falling sky.

On Tuesday morning New York time, the Dow opened weaker but quickly recovered to move into positive territory and was up about 200 points at 10 am New York time.

Rob Carnell, ING's chief economist and head of research for the Asia-Pacific, told The Business Times: "The only part of the fundamental narrative that has changed is that there is now stronger wage inflation than previously thought.

"It looked like a correction was on the cards before it happened, and if the wages figures had not triggered it, something else would have."

Experts maintained that the markets are coming off unusually low levels of movement volatility, as the rally in equities had seemed to march on inexorably. The Cboe Volatility Index (Vix) averaged 11.09 in 2017, down from 17.8 in 2012 - and spiked to 37.32 on Monday.

Fidelity International's multi-asset chief investment officer James Bateman called the recent action "perhaps the greatest sign of real health in markets for a long time", even while acknowledging that a long spell of low volatility may make it feel unusual.

Cedric Chehab, head of global strategy at BMI Research, wrote in an outlook note: "For us, the lack of volatility or a meaningful correction over the past several months was a sign of exuberance and not that of a healthy market, and although the sell-off has been sharp over the past two days, from a technical perspective, we have not yet seen significant 'chart damage'."

Yee Kok Wei, Fidelity International's portfolio manager in Japan, said: "Markets have been unusually strong with steady upward moves since the start of the year. Some sort of volatility like this is welcome, in my view.

"I won't be surprised if we put this behind us and the markets reach a new high sometime this year."

Phillip Futures analyst Samuel Siew told media that the bourse bloodbath "may just be a correction", with the sentiment-driven sell-off likely to abate.

DBS chief investment officer Hou Wey Fook, as well as strategists Dylan Cheang and Manish Jaradi, was more direct in a Tuesday update, with the title "Calm down - this is not the start of a bear market".

They argued that the current turmoil "is similar to other mid-cycle corrections which have been seen in recent years", pointing to the "robust" corporate earnings being reported and the lack of an ongoing recession.

"Tactically, we view this equity sell-down as necessary and overdue, after an unabated run throughout 2017," the DBS team wrote.

And, while panic selling in the United States came on the fear that higher inflation will fuel interest rate hikes, Asia may face no such issues.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye noted on Tuesday: "Inflation remains remarkably benign in Asia, despite rising oil prices."

Many have been urging investors to "buy the dip", with a Deutsche Bank Wealth Management memo noting that "we would continue to view periods of weakness as buying opportunities for our favorite cyclical sectors" - namely, technology, financials, consumer discretionary and industrials.

KGI Securities (Singapore) also put out a morning note reiterating "that the current sell-off may present buying opportunities for companies with solid fundamentals".

Retail research manager Joel Ng added in an e-mail to BT that the research team is leaning towards blue-chip stocks such as Keppel Corporation, Genting Singapore, Sats and Venture.

Meanwhile, Phillip Futures' Mr Siew told BT that now might be a good time to scoop up shares in banks and telcos, "because they're the main components of the index, with highest weightage, hence they are most impacted by the sell-down".

Bourse operator Singapore Exchange also noted in an afternoon update that gold and bond exchange-traded funds (ETFs) made gains even as the share sell-off ran rampant.

But AxiTrader chief market strategist Greg McKenna wrote in the morning that "we need to see what the retail investors who have such a part of this latest surge in stocks do".

"And we also need to think about what folks who have piled into passive ETFs and index funds will do." If these groups pull out in a panic, Mr McKenna warned, a market decline of 3 per cent to 5 per cent "can easily morph into something more pernicious".

Christian Gattiker, Julius Baer's chief strategist and research head, said in an update that with the volatility in play, action is likely to be "rewarding for hard-boiled traders who can go in and out of markets within a few hours".

"In contrast, investors are best advised to sit the current turbulence out until they feel assured that no bigger contagion is looming."

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