Market still in the grip of US tapering worries
THE better the United States economy appears to get, the worse it is for the local stock market. This is the simple equation confronting Singapore equities investors who this week watched the Straits Times Index fall four out of five days because the release of strong US economic data has led to worries that the US Federal Reserve might cut back its money printing sooner rather than later.
Of course the logic of this argument may be questioned - if the US really is recovering, then it should take the global economy with it, in which case export-oriented economies like Singapore's should benefit. And if so, there's no good reason why the STI should have fallen as it has - yesterday's short-covering 6.98- point rise helping to limit the weekly loss to 48 points or 1.5 per cent at 3,066.02. It is now about 100 points or 3.2 per cent in the red for the year.
Questionable though the logic may be, when the market's behaviour is considered together with Hong Kong's parallel slide over the same period, it does suggest that equity performance in this part of the world has been largely due to the Fed's money printing and not superior fundamentals. Turn on the tap while depressing interest rates to zero and money will flow into "higher risk" emerging markets like Asean; turn off the tap and raise the spectre of higher interest rates and money will flow out.
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