Tuesday, August 27, 2013

ASEAN Meltdown: Phisix and SETI crashes into Bear Markets, Singapore and Malaysia Slumps

Back in June I wrote:
The volatility in global bond markets remains a clear and present danger. Until these markets subside either naturally or through political interventions (in the hope that such interventions will have the desired effect), the prospects of further deterioration of markets should not be discounted. On the contrary, this should be expected.

And continued volatility may push many emerging markets including the Phisix into respective bear markets which increases the risks of a global crisis. There are many flashpoints not limited to Japan. They may come from China, ASEAN, Eurozone or elsewhere. Perhaps the US will be the last in the domino chain.
Today, the Philippine Phisix and Thailand’s SET joined the Indonesia in their respective bear markets partially fulfilling my earlier predictions.

Indonesia's tail spinning equity markets as represented by the JCI has been intensifying at an incredibly alarming rate. The JCI sank 3.71%.

Indonesian Rupiah

Indonesia’s rupiah has been under sustained pressures as the domestic 10 year bond yields continue with its almost daily dramatic ascent.

A popular aphorism "misery loves company" seems relevant to the contemporary conditions of ASEAN markets.

The bears have retaken command over the Philippine Phisix which tanked today by another wicked 3.96%, adding to last week's 5.5+% injury.


Foreigners posted net selling of Php 2.457 billion (US $ 55.217) as the local equity benchmark reentered the bear market territory for the second time in three months.  

The second bear market strike essentially reinforces the 1st bear assault last June. Along with 3 ASEAN stocks in bear markets, bears appear to be firmly in command. And it would likely take a Deus ex machina (new QE by the FED perhaps?) to save the day for the bulls. But if the damage from the financial markets spread into the real economy, even a new QE won't likely restore bubble conditions for ASEAN.

While Philippine bonds had been marginally changed, the local currency sympathized with the dreary region, the Peso fell .54% to 44.50. The USD-PHP rose to a 31 month high.

Plummeting by 2.65%, Thailand’s SETI also encroached into the bear market.  The frenzied liquidations also hounded the Thai currency the baht, as well as Thai’s 10 year bonds.

Malaysia’s equities as represented by the KLSE declined 1.23% accompanied by her currency the ringgit. Malaysian bonds had been little changed today.

What seem as striking has been that of the equity markets of Singapore which fell harder than Malaysia today. The STI now trades BELOW the June lows. 

The Singaporean dollar also got battered today.

As I wrote last Sunday, (bold original)
Should the bond vigilantes persist to haunt Singapore, then this would signify as a warning sign for a possible black swan event to occur in Asia.
Add the unfolding events in Indonesia and Thailand with Singapore’s predicament, these are distressing signs, not just of foreign outflows and of the growing risks of a regional recession, but of a brewing regional crisis.

Pardon the appeal to authority but Stephen S. Roach, former chairman and chief economist of Morgan Stanley Asia and senior fellow at Yale University, also suspects that the world could be “in the early stages of another crisis”

Writing at the Project Syndicate, Mr. Roach puts the onus on Asia’s meltdown on Bernanke’s ‘QE Exit strategy’ laps.
Never mind the Fed’s promises that any such moves will be glacial – that it is unlikely to trigger any meaningful increases in policy rates until 2014 or 2015. As the more than 1.1 percentage-point increase in 10-year Treasury yields over the past year indicates, markets have an uncanny knack for discounting glacial events in a short period of time.

Courtesy of that discounting mechanism, the risk-adjusted yield arbitrage has now started to move against emerging-market securities. Not surprisingly, those economies with current-account deficits are feeling the heat first. Suddenly, their saving-investment imbalances are harder to fund in a post-QE regime, an outcome that has taken a wrenching toll on currencies in India, Indonesia, Brazil, and Turkey.

As a result, these countries have been left ensnared in policy traps: Orthodox defense strategies for plunging currencies usually entail higher interest rates – an unpalatable option for emerging economies that are also experiencing downward pressure on economic growth.
In my view and as explained last Sunday, the current EM and ASEAN turmoil has been about the global bond vigilante’s growing recognition of the eroding capability of central banks to influence the markets.

ASEAN's rapidly deteriorating risk environment should not be dismissed or ignored.

Caveat emptor


bulee said...

what will be the effect on the property sector? particularly to the buyers of condo.. will bank rates become unfavorable?

benson_te said...

expect bank rates to rise

bulee said...

what could be the next crisis? asean currency devaluation? stock markets usually falls first then a crisis is known, correct?

benson_te said...

In the last US crisis, housing fell first, before the stock markets.

Should Indonesia suffer from a currency crisis, as explained last Sunday the causality link between currency and a banking crisis can go in both direction, viz banking crisis can cause a currency run or a currency run can cause a banking crisis. So far Indonesia case seems like an embryonic currency crisis...

Everything has been very fluid, we will see how it goes...

Allan said...

East (Asia) is going bear zone. while West (US & Europe) is being 'bullied' by their Central Banks?

theyenguy said...

The movement of the US planning a war in Syria, terminated Nation Investment, EFA, and Small Cap Nation Investment, IFSM, on Tuesday August 27, 2013. During the day, the Yen, FXY, blasted higher, as Major World Currencies, DBV, and Emerging Market Currencies, CEW, traded lower, causing Nation Investment, EFA, and Small Cap Nation Investment, IFSM, to trade parabolically lower. Foreign Regional Bank, BPOP, a liberalism currency carry trade leader, fell parabolically lower.

With the Indian Rupe, ICN, crashing lower, India, INP, and its banks, HDB, and IBN, traded strongly lower, inducing other BRICS, EEB, specifically China, YAO, Russian, RSX, and Brazil, EWZ, lower. Emerging Markets, EEM, trading lower included Chile, ECH, Indonesia, IDX, Philippines, EPHE, Turkey, TUR Thailand, THD. Countries trading lower included Argentina, ARGT, led by its banks, BMA, BBVA, BCA, BFR, and GGAL, the Great Britain, EWU, led by its banks LYG, RBS, and BCS, Mexico, EWW, led by its bank BSMX, and Israel, EIS.

The chart of the EUR/JPY showed a strong fall lower to 129.98, with the Eurozone, EZU, and European Financials, EUFN, led by Greece’s NBG, Ireland’s IRE, Spain’s SAN, Germany’s DB, trading strongly lower, as Greece, GREK, Ireland, EIRL, Spain, EWP, Italy, EWI, Neherlands, EWN, France, EWQ, plummeted, and Germany, EWG, EWGS, traded lower, inducing Norway, NORW, Sweden, EWD, and Switzerland, EWL, lower. Eurozone stocks, EZU, trading lower included, Ireland’s STX, IR, WCRX, ICLR, COVm, CRH, JHX, Netherland’s, ING, PHG, ASML, LYB, ST, CNH, YNDX, AER, QGEN, NXPI, TRNX, and France’s, ALU, VE. Eurozone Debt, EU, manifested bearish engulfing, portending a fall lower.

Republic Airways, RJET, led Regional Airlines, seen in this Finviz Screener, lower. And United Airlines, UAL, led Major Airlines, seen in this Finviz Screener lower. And Genworth, GNW, led life insurance companies, seen in this Finviz Screener, lower.

Sectors trading strongly, lower included 200% Inverse Volatility, XIV, Solar Energy, TAN, Small Cap Industrials, PSCI, Transportation, XTN, Biotechnology, IBB, and Small Cap Pure Value, RZV. Yield bearing sectrors trading lower included Water Utilities, PHO, Global Utilities, DBU, Leveraged Buyouts, PSP, and Shipping, SEA.

The National Bank of Greece, NBG, fell 9.5% lower, leading Global Financials, IXG, lower. Regional Banks, KRE, Nasdaq Community Banks, QABA, the Too Big To Fail Banks, RWW, Investment Bankers, KCE, Stockbrokers, IAI, European Financials, EUFN, and Emerging Market Financials, EMFN, all traded lower. Bloomberg reports US Bank legal bills and penalities exceed $100 Billion.

Silver Miners, SIL, and Gold Miners, GDX, led Metal Manufacturing, XME, Uranium Miners, URA, Industrial Metal Miners, PICK, Coal Miners, KOL, Copper Miners, COPX, and Rare Earth Miners, REMX, lower.