No wild swings, but many uncertainties

But recently, another tune has begun to emerge. Analysts issued a host of reports trying to explain why, despite the turmoil in the regional currency markets, Asia is not going to be hit by a fresh banking crisis.

Perhaps foreign investors are getting tired of the ongoing debate as well. The latest fund flow report from Citi Investment Research shows that last week, they poured a net US$2.1 billion into funds investing in Asian equity funds, after four weeks of selling.

In particular, their purchases were targeted at export-based economies with healthy trade surpluses, buying up a net $1.4 billion in South Korea’s Kospi-linked funds and another $970 million in funds linked to Taiwan’s Taiex Index.

Against this backdrop is an escalating debate as to whether the US Federal Reserve will start to scale back the massive liquidity it has been pouring into the global banking system when it meets later this month. In September last year, when Fed chief Ben Bernanke announced the initiative to restart the printing presses to issue $40 billion – later upsized to $85 billion – every month, he flagged that he would do whatever it would take to get US employment up again.

While he has triggered a stunning global stock market rally, it is also becoming clear the Fed has failed to jolt the US job market back into life. The latest job data showed that 169,000 new jobs were created in the US last month, well below Wall Street’s estimate of 200,000. Worse, the overall unemployment rate dipped only because a record 516,000 people had given up looking for work.

Then there is the tension in the Middle East, which provides much of the world’s oil. The US is threatening to launch air strikes against Syria after accusing it of using chemical weapons on its own people. The worry is that this may embroil the Middle East in fresh conflict and cause oil prices to escalate. That would add to inflationary pressure, which the global economy can do without as it tries to cope with the withdrawal symptoms from any US credit tightening measures.

So what should an investor do? September is traditionally the worst month for the stock market. So far, while stock prices have not suffered the wild swings that dogged trading in previous Septembers, there have been plenty of uncertainties to sour investors’ risk appetite.

And while analysts have taken pains to argue that it will not be 1998 again, they are also wary of calling a bottom on the market. One worry is the likelihood of US interest rates picking up again, as jitters over “tapering” resurface. Another is US President Barack Obama’s choice to replace Bernanke at the Fed. It is a decision the world awaits with bated breath.