Sunday, October 26, 2008

Blue chips wilt, as STI plunges 8.3%

Oct 25, 2008

Regional sell-down sees index suffer 4th biggest one-day points drop ever

By Goh Eng Yeow

THE financial tsunami of the century slammed into Asian markets yesterday, leaving a frightening trail of destruction in its wake.

Singapore's benchmark Straits Times Index (STI) plunged 8.3 per cent or 145.39 points - its fourth biggest one-day points drop in history - to a five-year low of 1,600.28.

'The uniformity of the regional selldown says it all. It is like a going-out sale. Everything's up for grabs,' said a trader.

The trigger for the sell-down was the plummeting Dow Jones and S&P 500 futures indexes, which lost as much as 10 per cent each before trading was temporarily halted.

Elsewhere, Tokyo plunged 9.6 per cent, Hong Kong fell 8.3 per cent and Seoul collapsed 10.6 per cent.

The panic sell-off then spread to Europe where London, Paris and Frankfurt fell by 8 to 10 per cent each.

Even oil was badly hit with crude prices plunging 6.4 per cent to US$63.50 a barrel - the lowest level in nearly two years. And gold - a traditional safe haven in troubled times - was down 5 per cent to US$714.70 (S$1,072) an ounce.

This prompted talks that some big hedge funds were in serious financial difficulties, bleeding heavily from investor redemptions and margin calls from anxious bankers as share prices dived.

Their sell-down was reflected in the strengthening of the Japanese currency. They have been making huge purchases of the yen and selling other currencies to repay their massive yen loans.

The Singapore dollar fell 4.6 per cent against the yen, bringing its total loss for the week to 12.8 per cent.

Hardest hit on the local bourse were the blue chips, which had escaped the recent maulings relatively unscathed.

United Overseas Bank plunged $1.72, or 12.5 per cent, to $12.08, while OCBC Bank was down 61 cents, or 11.1 per cent, to $4.88. DBS Group Holdings was down a smaller but still painful 8.6 per cent, or 94 cents, to $10.04.

Even cash-rich firms were hit. Singapore Airlines, which sits on $6.1 billion of cash, fell $1.22, or 10.4 per cent, to $10.52. Sembcorp Marine, which has a $1 billion war chest, lost 13 cents, or 9.6 per cent, to $1.23.

But some traders said the sell-down had reached the point of madness, as solid firms such as SIA, DBS and Fraser & Neave were sold down to way below break-up value. They urged investors to take heart as blue chips, the bedrock of Singapore's economy, are here to stay.

It will be business as usual at F&N, SIA, UOB and DBS next week, even though their share prices have taken a battering. Firms such as ComfortDelgro and SMRT will be ferrying hundreds of thousands of passengers as usual, whether there is a financial crisis or not.

The local blue chips had also learnt from the hard knocks in previous crises like the Asian financial crisis in 1998.

Those who kept the faith might find themselves richly rewarded, as blue chips come charging back stronger than ever, when the financial storm passes.

[Too bad I don't have the cash to invest in blue chips. I would pick them up if I could. The market is mad. From irrational exuberance, to panicked pessimism. The problem lies with the short term investors. They invest only for the short term so in the short term there are no good news. But rationally, in the long term, not every stock is going to go bust. Not every business are going to be equally unstable. But irrationality cannot be explained or countered. I wonder if the STI will fall to 1200 like the anonymous stock punter said in a street interview.]

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