Published September 26, 2008
Is the selling now 'genuine'?
Market weak throughout the day despite attempts at penalising short-sellers
By R SIVANITHY SENIOR CORRESPONDENT

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NOW that all the shorts have been forced to cover their positions and that short-selling is outlawed in the US, Europe and many Asian countries, does this mean that the current selling is 'genuine' in the sense that the sellers really don't want to own stocks, are looking to exit and are not the dreaded short-sellers?

If so, are the portents worse for the market than they were a week ago when there was no pressure to curb short-selling?
You'd have to agree - despite imposing its ill-conceived ban on all forms short-selling, both naked and covered, Wall Street has not been able to add to its post-Treasury bailout announcement gains, and instead has embarked on a gradual backslide that is spreading to this part of the world.
Yesterday's session was a case in point, marked by weakness throughout the day - this, despite the Singapore Exchange's (SGX) attempts at penalising short-sellers.
The Straits Times Index was soft from the opening bell and, although it showed sporadic bouts of strength - probably intraday short-covering in line with Hong Kong - the index finished 33.36 points weaker at 2,444.24.
Observers said that there were now fresh jitters over whether the US$700 billion bailout plan of the US Treasury and the Federal Reserve would be passed by Congress, at least judging by the ongoing opposition so far.
In addition, now that no fresh good news has emerged from the US in the past few days and short-sellers are probably all done covering themselves, brokers said the concern here is that the market might have to deal with fund redemptions.
Brokers also continued to complain about the SGX's recent imposition of a minimum fine of $1,000 for 'failed trades' or naked short positions detected at the end of each day - the complaint being it penalises inadvertent and ultimately innocent retail players. According to some, this has robbed the market of some liquidity because of the fear of making a mistake. Excluding foreign currency issues, turnover yesterday came to 876 million units worth $864 million, compared to $1.08 billion on Wednesday.
On the state of the US market, BCA Research said that some value investors were nibbling at stocks, and equity buyback announcements were accelerating, underscoring that the market was reasonably priced if the economy does not sink into a black hole.
'This remains a big if, given the lack of trust in the banking system and relentless erosion in housing prices. . . However, housing prices are likely to continue to be eroded for several more quarters, and the shock to consumers from the worst post-WWII housing slump will have a negative impact on sentiment and spending for some time to come. Moreover, the (Treasury bailout) plan will do little to reverse the increase in unemployment,' said BCA.
Although most brokers' reports issued yesterday were 'sells', perhaps the most interesting was a 'sell' recommendation on SGX with a $4.70 target by Citi Investment Research, which also said that the STI could fall to 1,800.
'Citi has cut Singapore GDP forecasts, now signalling a mild recession, with possible risk to the downside. History suggests that the STI can fall more than 50 per cent from the peak for prolonged downturns. So if the recession deepens, we can make a case for the STI to retrace to 1,800 (STI peak was 3,830) by mid-2009, which on a bottom-up basis is 1.1 times trailing price/book and suggests that consensus earnings may fall 30 per cent from the peak.'