KUALA LUMPUR: Asian stock markets, including the local bourse, extended their declines yesterday before sentiment was lifted by a brief advance across US stock futures, which helped regional indices recoup losses. This followed a massive selloff a day earlier as global markets reacted to Standard & Poor’s (S&P) downgrade of the US credit rating from AAA to AA+.

While analysts and fund managers believe Asian equities could see a rebound following a sharp correction, they are also mindful that the gains might be technical and temporary. This comes against a backdrop of still weak global economic fundamentals as growth slows in advanced economies.

“A rebound is likely across stock markets in Asia,” Kenanga Research associate director Chan Ken Yew told The Edge Financial Daily in a telephone interview yesterday.

Yesterday, the FBM KLCI fell as much as 4.91% or 73.52 points to 1,423.47 points, an 11-month intraday low since September last year, before paring losses to end at 1,472.14 points, down 1.66% or 24.85 points from a day earlier.

Primary movers of the index included CIMB Group Holdings Bhd which fell 20 sen to close at RM8.10, IOI Corp Bhd down 21 sen to RM4.47, and Tenaga Nasional Bhd down 24 sen to RM5.70

Some 1.9 billion shares worth RM3.6 billion changed hands, resulting in 828 declining stocks against 159 gainers.

Top decliners included British American Tobacco (Malaysia) Bhd which fell RM1.40 to RM43.20, Panasonic Manufacturing Malaysia Bhd, down 80 sen to close at RM22.90 and Fraser & Neave Holdings Bhd, down 80 sen to close at RM18.

The most active counter was builder Ranhill Bhd, which added 13.5 sen to 88 sen after its major shareholders made a takeover offer to acquire the remaining shares in the firm. Telecommunications entity Axiata Group Bhd declined five sen to RM4.94. Ranhill saw some 56 million and Axiata 40 million shares done.

Across Asian equity indices, notable decliners include Hong Kong’s Hang Seng which fell 5.66% to close at 19,330.7 points, and South Korea’s Kospi which was down 3.64% to 1,801.35. Singapore’s Straits Times dipped 3.7% to 2,884 points while Japan’s Nikkei 225 dropped 1.68% to  8,944.48. However, Australia’s S&P/ASX 200 managed to recoup earlier losses to finish 1.22% higher at 4,034.8 points.

Futures on the Dow Jones Industrial Average, S&P 500 and Nasdaq gained as much as 3% before giving up their gains during the day. The market had been eagerly awaiting a US Federal Reserve statement on monetary policy yesterday, that would be closely followed for any hint of further easing.  

The spot price for gold continued its rise by some US$37 to reach US$1,757 (RM5,306.14) an ounce, its highest in about nine years since August 2002.  

Crude oil futures fell as rising inventory raised concerns that a weaker global economy would slash fuel demand. The September 2011 contract in the US declined US$2.32 to US$78.99  a barrel.

According to Kenanga’s Chan, the strength of Asian economies will hinge on these countries’ domestic fundamentals.

This is by virtue of these export-oriented economies’ exposure to a weaker external backdrop as advanced economies such as the US and European countries, which are also major importers of Asian goods, contend with slower economic growth, he said.

RHB Research Institute head of research Lim Chee Sing said there was a loss of confidence in the global economic recovery amid visible risks that the US, the world’s largest economy, might encounter a double-dip recession.

Lim, who believes that global stock markets have yet to price in the weakness in the broader landscape, said apart from the downgrade in US government debt, weaker purchasing managers index (PMI) numbers globally also triggered the massive selloff across stock markets worldwide.

“Confidence is at stake,” Lim said over the telephone yesterday. He said weaker PMI updates in July had raised concerns on the sustainability of a global economic recovery.

China’s PMI in July declined from 50.9 to 50.7 points while the numbers in the US fell from 55.3 to 50.9.

The PMI is considered a crucial indicator of a country’s manufacturing industry growth, hence, a key indicator of GDP numbers as well. A PMI reading of 50 or higher generally shows that the manufacturing industry is expanding.

Apex Investment Services Bhd fund manager Mohammad Amir Mokhtar said the fund management  firm had been reducing its equity holdings from some 90% to about 70% as it increased the cash portion in its portfolio.

“We are cutting losses,” Amir said, adding that the technical rebound in Asian stock markets might be temporary.

From a technical viewpoint, OSK Research said the possibility of the FBM KLCI reaching a new high at above 1,600 points “was significantly reduced” following the sharp correction in the barometer.

However, OSK said the longer term trend is not expected to turn down unless the index closes below 1,480.

“But should this level be violated, the first target would be 1,380, which is a 62% correction of the May 2010 to Jul 2011 rally,” the research house wrote in a note yesterday.

On Monday, the FBM KLCI fell as much as 3.16% or 48.19 points to 1,476.24 points before paring losses to end at 1,496.99 points.

This article appeared in The Edge Financial Daily, August 10, 2011.