THE current lethargic stock market conditions are making traders sweat.
Daily market volume has fallen by about one-third to just over one billion shares, since the Chinese New Year holiday three weeks ago.
There may be over 600 firms listed on the Singapore Exchange, but check the volume, and you will notice that only a handful of counters are actively traded. Genting Singapore, for example, easily accounts for about 10 to 15 per cent of all trades daily.
There is simply little or no interest in trading the other counters at all – and that makes one wonder why some companies even bother to stay listed at all, if no one is interested in their shares.
One argument used several years ago by investment bankers to convince company bosses of the joys of listing is that they can monetise the shares into cash, by pledging them with the bank.
But banks are not stupid as well. If a company attracts trades of one hundred thousand shares or less daily, and someone wants to pledge millions of its shares in exchange for a loan, the bank is unlikely to accept the entire tranche as collateral.
In the event of a default, the bank is unlikely to get its money back because there is no way it can sell the shares on the market because of its thin liquidity.
What exactly ails the local market?
Citigroup noted recently that Singapore was the only Asian market where foreign funds were all selling last month. It was not an exactly flattering observation.
But then, I am not exactly surprised by it. One of my remisier friends said that he hardly turned up in the office recently. His clients were hardly calling, and his phones were silent.
Instead, he had been spending his time, looking at the UK and the US market where hopes of an economic recovery offers better prospects of corporate earnings upgrades – and better share price performances.
The sluggish stock market may be a reflection of the manner in which liquidity is shrinking across the region, as central banks start to remove the fiscal stimulus measures which had been put in place in the past two years to fight the global financial crisis.
My colleague, Joyce Teo, reported today that developers are moving into high gear to launch property projects, especially in the prime areas.
Somehow, I am not surprised by their move.
In the past, the residential sales market had moved almost in tandem with the stock market.
A sluggish stock market inevitably flags a slow take-up rate in property launch – and developers are simply hedging their bets by launching their projects now, rather than six months later when interest may have melted away.
If investors are confused over the direction in which the stock market is headed – hence the side-way movements encountered in stock prices recently – they are also likely to take a wait-and-see attitude in the private residential market as well.