Monday, May 15, 2006

Asian Market Readings
15 May 4.00pm Monday Tarot Card Session

Asian bourses fell after a sharp-two-day fall on Wall Street. Singapore's Straits Times Index fell 2.54% or 66.51 points to 2,554.07, Japan's Nikkei 225 fell 1.04% or 172.60 points to 16,429.18 and Hong Kong's Hang Seng Index tumbled 1.74% or 294.24 points to 16,607.61. KLSE did a similar turn. Oil prices remained at over the US$70 (RM249.86) per barrel. Light crude oil for June delivery was at US$71.32. The ringgit was quoted at RM3.599 to the US dollar. While the bigger Asian bourses followed the US markets weakness, there is a prevailing under-current of weakness in the KLSE. The designation of Iris on Thursday, and the surprise request for suspension by Patimas and Iris today bears watching. Iris has shot up in market cap from RM100 million to RM1.1 billion in a matter of weeks. If it had traded today, even a 50% fall would only have wiped out RM500 million in value, which won't affect the market much. So, the fact that it dare not trade is even more suspicious. Today probably gave investors a good chance to lighten up on stocks everywhere. The signs are even worse for Malaysian second liners. Hence I would advise more caution for Malaysian stock players especially of lower liners. Best to stay away till more news unfold on Iris.

The yuan strengthened beyond 8 to the dollar for the first time in more than 12 years, prompting speculation that China's government is allowing faster gains to win U.S. support for its currency policy. This is just after the U.S. Treasury Department decided against accusing China of manipulating its currency in a semi-annual report. The currency strengthened 0.1% to 7.9980 per dollar as of 2:44 p.m. in Shanghai, bringing gains to 1.4% since July's revaluation - a very long way to go for the yuan. U.S. lawmakers are pushing for faster yuan gains to narrow a trade deficit with China that reached US$201.6 billion last year. That will not solve the US problems, a stronger yuan only means the Americans will buy from somewhere else. The yuan hasn't risen more than 0.15% intraday since China scrapped a peg to the dollar on July 21, in contrast with the maximum 0.3% the central bank said it would allow. The gradual appreciation of the yuan will force Bernanke's hand to raise rates in the coming months again unless he is willing to see a much weaker dollar. I think Bernanke don't mind a weaker dollar but not a collapsing one. The fact that almost all equity markets are rising to greet the stronger yuan, stronger emerging markets' currencies, and a weaker dollar is probably due to all parties are pleased with this "financial engineering" by the major players.

The yuan's development and the dollar weakness would probably recharge most of the Asian markets in the days ahead - the brief profit taking period is necessary. Overall uptrend still intact.

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