>> ASIAONE / NEWS / THE STRAITS TIMES / STORY

Foreign funds head for exit with market rebound
Goh Eng Yeow Wed, Dec 05, 2007 The Straits Times
RALLIES that have been lifting stock markets across the region since Thursday have provided foreign fund managers with the perfect exit strategy from Asia. Unlike the August rebound, when rising shares drew in billions of overseas dollars to Asian markets, the fund managers' action this time has been to lock in profits and jump ship. Redemptions from Asian funds hit US$2.5 billion (S$3.6 billion) last week. Citigroup analyst Elaine Chu said 'selling of Asian stocks rose to an all-time high in October while regional markets were reaching new highs'. Big investors have also been taking profit on their equity holdings, as the appetite for risk sours. In some cases, they have been willing to take a 10 per cent discount on current market prices to take out their investments. This was despite Singapore's Straits Times Index rising 4.7 per cent, Hong Kong's Hang Seng Index climbing 5.5 per cent and Tokyo's Nikkei 225 Index gaining 2.3 per cent between Thursday last week and yesterday.

Buyers, whether foreign funds or individual investors, are staying on the sidelines, fearful of another sharp correction.

In Singapore, only about 1.44 billion shares worth $1.97 billion have been traded on each day this week, a far cry from October's daily average of 3.8 billion shares worth $3.03 billion.

Phillip Securities' managing director, Mr Loh Hoon Sun, said: 'The markets are so uncertain that cash is king.'

While investors will welcome a fresh interest rate cut by the United States Federal Reserve, there is also the fear that such a cut may send the greenback plunging further.

There is no guarantee share prices will continue to rally, even if interest rates are cut next week, one dealer noted. 'It is a mixed record with the Fed rate cuts so far. The cut in September was reacted to with glee, but bourses failed to get any boost from the October trimming.'

The downbeat mood is reflected in Citigroup's figures for funds outflow. Last week, funds invested exclusively in Asian equities sold US$688 million of H-shares - China firms listed in Hong Kong - and another US$53.5 million in Hong Kong shares.

Investors also pared their portfolios of Singapore shares by US$46.9 million and stocks in India by US$208.1 million.

The drying up of demand even for blue chips has left fund managers willing to get out even at levels well below market prices.

Last Friday, an unidentified seller used the five-minute interval after the closing bell for traders to settle outstanding trades to throw out 25.3 million Chartered Semiconductor shares at 98.5 cents apiece. This was 4.5 cents lower than the stock's last done price of $1.03.

And two investors in Indonesia's largest plantation group, Golden Agri-Resources, raised $400.5 million by placing out 225 million shares at $1.78 apiece - a 9.6 per cent discount to Thursday's $1.97 close.

Even big names have been paring positions. Last week, Temasek Holdings trimmed its stakes in three giant China firms - China Cosco, Bank of China and China Construction Bank - reaping proceeds of about HK$8.6 billion (S$1.6 billion) after placing out the shares at a small discount to the then traded market prices.

engyeow@sph.com.sg