IT has been exactly one week since Wall Street’s Bernard Madoff stunned the world with confession of his US$50 billion swindle.
Much has been written since then about the subject - how he abused the trust of the tightly-knit unsuspecting Jewish community in the United States which entrusted billions to him, and conned global banks like HSBC and BNP Paribas which had escaped relatively unscathed from the past 18 months’ financial meltdown.
What is surprising is the absence of reaction from the world’s financial markets to the latest scandal on Wall Street, as a traumatic year draws to a close.
Surely, a scandal of such a scale would cause a fresh round of market convulsions, as jittery investors demand their money back from hedge funds whose reputations have already taken a big battering from the astounding losses which they had incurred so far for their clients this year.
Some will recall that it was news of the US$40 billion redemptions from hedge funds in late October which caused a furious selldown in global financial markets. It had caused regional indexes such as STI to sink to its lowest levels in nearly five years.
But those, who hope that the Madoff scandal is now contained, may be disappointed.
There may simply be a selldown sometimes down the road. The question is simply “when”.
During the superbull run last year, hedge funds were responsible for pushing regional stock markets higher, as they poured billions into blue-chips and penny stocks alike in their overzealous pursuit for higher yields.
But the industry is rapidly contracting now, as chastened investment banks such as Morgan Stanley and Goldman Sachs cut the credit lines they provide to hedge funds.
Giant US hedge funds such as Citadel, which has about US$15 billion under management, are suspending redemptions after suffering big losses.
By some estimates, about US$400 billion had been locked up because of such suspensions. It is giving Wall Street and regional markets a much needed reprieve from another round of sell-down.
Each week, I check the fund flow data kindly provided by Citigroup very carefully.
True enough, there is hardly any fund movements in or out of huge liquid regional markets such as Singapore and Hong Kong.
Perversely, it is good news to find that foreign funds are inactive as Christmas approaches.
But so much bad news continue to pour out non-stop out of United States, Europe and now China.
It has many of us wondering how long all will stay quiet on the regional market front.