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Turbulence Abroad; Savage Selling Unleashed At Home
Singapore Market Commentary | 11 October 2013
By: Nicholas Tan
Articles (71) Profile

In the past 2 weeks drama unfolded in the US with the Republicans unable to reach a consensus with the incumbent government on increasing the debt ceiling, which led to a partial shutdown of the Obama administration. Constructive dialogue has begun on 11 Oct though no deal has been strike yet.

Uncertainty now hangs over whether the US government is truly going to make a historic default on its US$16.7t debt, which will be catastrophic to markets and most likely derail the still fragile US economy by jeopardising its recovery path, and possibly leading to global economic chaos.

Given that markets were seemingly unperturbed by the dreaded situation, the option of defaulting is highly unlikely to happen as most investors still expect an eleventh-hour deal to materialise on 17 Oct. But, we expect the raising of the debt limit will not come without negotiations to rein on deficit spending, based on a statement by Republican House Speaker John Boehner on 6 Oct.

On the Treasury side, optimists are predicting that Janet Yellen will easily get the Senate votes to be the next Federal Reserve chief following an endorsement by President Barack Obama. Yellen is considered by many on Wall Street to be more of a dove than her current boss, however, most economists expect her to take a measured approached in dealing with the unprecedented monetary stimulus programme.

In the local scene, carnage ravaged through the market, hitting penny counters the hardest after SGX stepped in on 4 Oct to query the share prices and trading activities of 6 companies, and subsequently, suspended 3 stocks namely Asiasons Capital, Blumont Group and LionGold Corp.

Trading resumed for these 3 counters on 7 Oct racking up large falls and they had $8.5 billion of their combined $9.2 billion value (before the SGX stepped in) wiped out in the past 2 weeks. Consequently, they were assigned as “designated securities” which prevents short-selling and contra-buying of these stocks, in an attempt to calm the market.

Domestically, the benchmark Straits Timex Index was flat for the fortnight closing at 3179.71 on 11 Oct, presumably seeking a direction to head in.

Well trained in aspects of finance and business, Nicholas oversees the finance and manufacturing sectors at Shares Investment.

Please click here for more information about this author.

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