BT: Clearly, not time to bottom-fish yet (28 Aug 2008)

Clearly, not time to bottom-fish yet

Brokers see S'pore market losing its shine compared to the region, risk of further downgrades

By R SIVANITHY
SENIOR CORRESPONDENT

US INVESTMENT house Merrill Lynch titled its latest report on Singapore property 'Do not catch a falling knife', but it may as well have applied it to the entire stock market, judging by present conditions - despite Hong Kong's Hang Seng Index rising almost 2 per cent, the Straits Times Index (STI) hardly budged, closing 2.1 points lower at 2,705.09.

UOB Kay Hian (UOBKH) offered some insight into why this might be the case. In its Regional Morning Notes on Tuesday, the local broker said the Singapore market could be falling out of favour. 'The Singapore stock market outperformed the region from January to July with the STI registering a smaller decline of 15 per cent compared with Asia ex-Japan's average decline of 23 per cent.'

'Singapore is losing its shine in August with a larger month-to-date (Aug 1-22) loss of 7 per cent compared with Asia ex-Japan's average of 5 per cent. And this excludes the impact of a weaker Singapore dollar, which has depreciated by 5 per cent against the US dollar since mid-July,' said UOBKH.

The local broker believes that although the broad market's earnings are still intact, large sectors like property and banks did disappoint. It has a 12-month STI target of 3,285.

Similarly, Citi Investment Research in a Tuesday earnings wrap concluded that 'Earnings are in recession' and the risk lies in further downgrades in the coming quarters.

It said the Q2 reporting season uncovered more disappointments than positive surprises. 'About 30 per cent of companies disappointed, a large jump from the 14 per cent in the previous quarter. About 51 per cent met expectations (versus 66 per cent in Q1) while only 19 per cent exceeded expectations (versus 20 per cent in Q1).'

'DBS and OCBC underperformed expectations, while UOB was in-line... developers underperformed as residential sales slowed both domestically and across the region,' said Citi. It recommended a 'sell' on the banks and lowered its 12-month STI target from 2,980 to 2,860.

Going along similar lines was Merrill Lynch (ML), whose knife analogy vis-a-vis the property sector isn't new but is nonetheless eye-catching.

'Our initial hopes for a property market recovery in 2H08 have disappeared given the way the macro environment panned out. Poor demand/ supply dynamics continue to weigh on the sector,' said ML in a Tuesday report, adding that it expects residential prices to fall 10 per cent in 2008 and 25 per cent in 2009. 'At the earliest, we believe the market will only stabilise in 2010... it is still too early to bottom fish for stocks.'

Yesterday's session was a clear indication of how uncertain the outlook is, with the STI failing to track the Hang Seng Index as it usually does.

Instead, the Singapore index probably fell victim to Europe's poor opening where at 5pm markets were averaging 0.5-1 per cent lower, as well as the US futures market where the September contract on the Dow Jones Industrial Average reversed a morning rise to trade about 30 points lower.

Turnover continued to be low at 760 million units worth $906 million, excluding foreign currency issues, while the broad market sagged yet again - excluding STI components and warrants, the rest of the market recorded 131 rises versus 194 falls and 475 counters either untraded or unchanged.



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