Tougher Times For Investors Ahead

On the eve of our National Day and the opening ceremony of the Olympic Games, there is actually little to celebrate as an investor. The ST Index dropped 27.17 points to close at 2807.54, volume was weak at 1.041 billion while gainers/losers stand at 197/327.

COSCO Corp’s shares plunged 12.2% following the shock “retirement” of president Ji Hai Sheng. Mr Ji was synonymous with the success of the shipping giant and his abrupt exit, clearly a power struggle, does not sit well with investors. Other shipping firms like Yangzijiang and NOL also face selling pressure.

The unwinding of stocks related to energy and commodities also soured investors’ mood on the SGX in recent weeks. Slumping oil prices (a 3-month low of $115 a barrel as of Friday) was the major reason.

Many analysts have actually highlighted that the run-up of oil prices is inflated by at least 1/3 due to speculation. And so it has been proven. I will list a few reasons for the oil slump -

1. The downfall of Semgroup

2. Charges leveled against rogue energy trader, Optiver.

3. Mutual/hedge funds seized by panic and dumping oil futures.

4. Opec chief predicting oil prices stabilizing at $70 per barrel.

5. Tensions cooling off in Iran.

6. US economy stuck in a technical recession and rising unemployment, consecutive weekly oil inventory reports showing increasing supplies.

7. Hybrid/fuel-efficient cars dominating the market, consumers reducing driving trips, etc. to reduce household expenses on fuel.

8. Baltic Dry Index fell another 320 points in July to 7201, implying weak global trade, poor consumer sentiment and a general economic slowdown.

9. Energy consumption in China and Taiwan declining…

Add all of these factors up, and the picture for a bullish oil run is not pretty.

Dow Jones rallied on Friday by spiking more than 300 points as US dollar rallied strongly against foreign currencies. Standard & Poor’s 500 index gained 2.4%, and the Nasdaq composite gained 2.5%.

The financial sector remained in turmoil as Fannie Mae reported a big quarterly loss of $2.3 billion (more than triple of analysts’ forecasts), reflecting a deepening crisis in residential properties. Much of the losses came from write-downs of mortgage backed securities, a situation already replicated in Freddie Mac, two days ago.

Going forward, despite this rally on Wall Street, the situation in Singapore, and hence SGX, is grim. Prime Minister Lee Hsien Loong, in his National Day message, cut the 2008 GDP growth forecast to 4-5 per cent. He also expects a tough year due to the widening impact of a US slowdown.

Tougher times for Singaporeans ahead, rising unemployment is going to hit home soon. Stay tuned for more updates.

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Filed under Banking, Economy, Hedge Funds, Oil, Stocks

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