BT: Regional markets due for pull-back in March - DBS (01 Feb 2007)

Regional markets due for pull-back in March: DBS

By WONG WEI KONG

THE longer-term outlook remains positive, but Singapore and regional markets could see a correction in the near term - and investors should buy only when there is a pull-back, DBS Bank told private clients at a lunch yesterday.

'If you chase stocks that have gone up 100 per cent, be prepared to lose 50 per cent,' said Timothy Wong, managing director and head of regional equity research at DBS.

'We're positive on Asian equities in the medium term, but in the short term the markets are due for a pull-back.'

Fresh from a two-week roadshow overseas, Mr Wong reported that investors are 'more nervous, more defensive in their positions'.

In its strategy overview, DBS said regional markets will move higher in January and February with a possible pull-back in March. In January and February, Asian stocks should remain driven by positive local 'feel good' factors such as rising property prices, bonus payments and wage improvements. Volatility, however, may rise as investors take profit on recent gains.

But come March, external factors will come to the fore. The main risks are US interest rates and the growth outlook. Uncertainty over global growth may arise again, with the possibility of data from the US and Asian countries showing a slower pace. Other risks include bird flu and country-specific factors.

However, the potential risks faced by markets are likely to be transient and stocks will still end the year higher, Mr Wong said.

'We called for 10 per cent (gains) this year,' he said. 'In the past three weeks, 5 per cent of that was done. We have a target of 3,200 for the Straits Times Index and we are close to that. The question is: do we revise the target?'

According to him, several trends point to positive Asian markets in 2007. For one, foreign fund flows to the region are expected to continue. After staying away since the 1997-98 Asian crisis, foreign funds have been returning to the region over the past four years. Asian markets are also in a position to absorb inflows without disruption to stock prices.

Other positive themes include demographics, capital management, the construction recovery, the 2008 Olympics in China and continued regionalisation.

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