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Friday, 24 January 2014

US stocks tumble on China data, mediocre earnings

NEW YORK: US stocks sank Thursday following a weak report on Chinese manufacturing activity and the latest batch of lacklustre corporate earnings.

The Dow Jones Industrial Average slumped 175.99 (1.07 per cent) to 16,197.35.

The broad-based S&P 500 fell 16.40 (0.89 per cent) to 1,828.46, while the tech-rich Nasdaq Composite Index fell 24.13 (0.57 per cent) to 4,218.87.

HSBC's China manufacturing sector purchasing managers index fell to 49.6, below the 50 line between growth and contraction, raising concerns about the prospects for the world's second-largest economy.

The China data came amid a mixed batch of corporate earnings reports with strong earnings from Netflix offset by disappointing results from Lockheed Martin and others.

Michael James, managing director of equity trading at Wedbush Securities, said the new China manufacturing data, while "concerning," is "just one data point."

Mace Blicksilver, director of Marblehead Asset Management, said Thursday's trade could the start of a stronger retreat if the China data implies deeper economic problems.

"Only time will tell," Blicksilver said.

The fall in stocks was accompanied by a jump in US Treasury prices that Blicksilver called "part and parcel of the same trade."

"You have weak stocks and weak growth, potentially a real problem in China and you're going to get a flight to the bond market," he said.

Hard-hit companies included banks like JPMorgan Chase (-1.9 per cent) and Citigroup (-2.3 per cent), as well as metals producer Freeport-McMoRan Copper & Gold (-2.4 per cent) and Dow Chemical (-2.1).

Banks and materials stocks typically advance in an improving economy and fall when the broader economy weakens.

Netflix shot up 16.5 per cent after quarterly earnings rose to $48 million compared with $8 million a year ago. The online video-streaming company also reported a big jump in subscribers.

Online marketplace eBay rose 1.0 per cent after announcing that activist investor Carl Icahn had taken a stake in the company and was advocating a spin-off of its PayPal payments unit. EBay said it will fight Icahn's proposal.
Defence contractor Lockheed Martin fell 3.9 per cent after earnings of $1.50 per share widely missed expectations of $1.95 per share.

Bond prices rose. The yield on the 10-year bond fell to 2.77 per cent from 2.86 per cent Wednesday, while the yield on the 30-year declined to 3.68 per cent from 3.76 per cent. Bond prices and yields move inversely

1 comment:

  1. SINGAPORE: The Singapore market has been trading in a tight range of around 200 points for the past eight months.

    That is the narrowest range seen since a 10-month period in October 2003.

    Analysts said that is because investor sentiment, which took a hit over US Fed tapering fears, has not come back.

    But as the market heads towards the first-quarter earnings season, they said things could look better for the Straits Times Index (STI).

    The Singapore market collapsed from a high of 3,454 points last May and has been trading in a tight range since.

    Investors pulled out of the region in May and August on Fed taper concerns.

    This was followed by a penny stocks crash in October that wiped S$8 billion in market value.

    Analysts said market confidence has not recovered.

    Daryl Liew, head of portfolio management at Reyl Singapore, said: "The rest of the Asian markets have traded in a range as well over the last quarter of last year and the start of this year.

    "So you just compare Singapore to Malaysia, to Thailand, to the Philippines, to Indonesia, to the Chinese market, Korean market -- they have all basically moved in step with each other.

    "And broadly speaking, one of the main reasons for that is that investor appetite is still more pro-developed markets, as opposed to Asia and emerging markets."

    Most Asian and emerging markets closed 2013 in the red or saw modest gains.

    The Shanghai Composite and the Thai stock market were down around 6.7 per cent, Singapore closed flat, while developed markets like the US and Japan posted high double-digit gains of 29.6 per cent and 56.7 per cent respectively.

    But some analysts have said the tide could turn, especially if first-quarter earnings of Singapore corporates surprise on the upside.

    Gabriel Yap, executive chairman of GCP Global, said: "Telco M1 has reported slightly above expectations (but) what it actually surprised the market with was a special dividend. So that actually gives hope to many investors that cash-rich companies are likely to pay special dividends this year.

    “So the high-dividend stocks like your telcos, SPH, ST Engineering, SIA Engineering, SATS as well as Singapore Post are probably in a position to do that."

    Other stocks that analysts like are those that derive revenue growth globally, rather than from the domestic market. These include companies in the offshore and marine sectors, and the commodity plays.

    Mr Liew said: "Our concern for the Singapore stock market is that companies that are pretty much reliant on domestic growth will struggle, mainly because of costs -- rents, labour costs for example."

    Meanwhile, since some foreign funds tend to look at Southeast Asia as a single investment destination, analysts said the STI could pick up when the political situation in the region stabilises.

    Thailand is headed to the polls early next month and Indonesia will hold elections in July.

    - CNA/ms


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