HAVING risen 82 points in four straight trading sessions - one before the Greek elections over the weekend and three after - the Straits Times Index (STI) yesterday ended 25.53 points down at 2,830.15.
Turnover remained as depressed as it has been for many months now with 1.4 billion units worth $907 million traded excluding foreign currency issues.
According to conventional market wisdom, the reason for the selling was sudden doubts over the situation in Europe, particularly Spain and Italy. As a result, Hong Kong closed 1.3 per cent weaker and Europe opened about 0.5 per cent in the red.
An equally likely explanation was that trading funds had bought ahead of Wednesday's US Federal Open Market Committee meeting and sold once it was over.
Stocks in play were mainly of the penny variety, with brokers making a spirited attempt at generating interest in counters such as M Development, Artivision, and GMG. Call warrants on the Hang Seng Index were also active, as were shares of commodity firm Olam International.
Among the few research reports of interest issued yesterday was Maybank Kim Eng's "sell" on the Hong Kong Exchange (HKEx) following the latter's purchase of the London Metals Exchange (LME).
"While LME's trading fees would be raised by around 200 per cent in July 2012, the adjusted price-earnings of 60x still looks very stretched, especially given that HKEx has promised not to raise trading fees again until 2015," said the broker. It set a fair value of HK$90 for the stock which yesterday closed HK$1 weaker at HK$108.70 on volume of 3.8 million.
In a report yesterday, Reuters quoted ING strategists as saying that with Spain under increasing pressure, the spectre of having to exhaust European Stability Mechanism (ESM) resources with an official rescue of Spain looms large.
ING was quoted as saying that with a full rescue package for Spain likely to cost around 250 billion euros (S$401 billion), taking into account funds already committed to Greece, Ireland, and Portugal would leave only around 150 billion euros in the kitty, said Reuters.
"If beyond that, Italy were to require help we would enter very dangerous territory," ING said. "There is no rescue mechanism in place that could cater for an Italian bailout."
In its June 20 Liquid Insight, Bank of America-Merrill Lynch (BoA-ML) said it has long held the view that the US Fed will launch a third round of quantitative easing or QE3 by September and that remains its view today.
"We also think it will not start hiking interest rates until mid-2015 at the earliest," said BoA-ML. "Exactly when the Fed will announce such easing actions depends on the outlook and risks. We see about a one-in- three chance that it will launch a significant action in June, although by September we see a 75 per cent chance of QE3."
In its June 14 Economics Markets Strategy, DBS Group Research said that even if Greece exits the eurozone it does not mean another "Lehman moment" because people have had two years to think about and prepare for it.
"When Lehman Brothers collapsed, it literally happened in a moment - over a weekend," said DBS. "People came to work Monday morning and had no idea who they could trade with. Because they had no idea who was holding Lehman's rotten apples. Everything froze.
"Markets have had since May 2010 to research and discover who's holding the bad apples this time. And most have known for quite a while who it is."