Analysts say outlook for Singapore's stock market poor

By Ng Baoying, Channel NewsAsia | Posted: 31 March 2009 1952 hrs

SINGAPORE : Singapore's benchmark stock index, the Straits Times Index (STI), ended the first quarter this year down 3.5 per cent. The STI closed at 1,699.99 on Tuesday.

However, that is a recovery of 16 per cent over the six-year-low seen in the early part of this month.

Nevertheless, analysts have said the rally is not sustainable and expect a bumpy year ahead for the index.

Most analysts said the recent uptick in the local bourse is unsustainable in the year ahead.

Kevin Scully, executive chairman, NRA Capital, said: "The market is being a bit premature in assuming the worst is over. We will continue to see downgrades in global growth, trade. And I think corporate earnings guidance for first quarter, probably in mid-April, will be quite negative. And that will show that the rally is not supportable."

Looking ahead, analysts said defensive plays like utilities, telcos and transport counters are good bets. In the first quarter, commodity-related stocks stood out, rising about 20 per cent on the back of a rebound in crude prices.

Analysts also recommend firms that pay solid dividends, but warn against sectors such as shipping and airlines, which tend to rally much later than the rest of the market.

Banking counters also face further downside risk.

Mr Scully said: "I am looking at banks going down 0.6, 0.7 price to book to test the levels we saw in the 1997 Asian financial crisis. I think we are just in the beginning of an asset deflation cycle so we haven't seen the effect on bank balance sheets yet. I am looking at bank NPL (non-performing loans) going to about 8 per cent. Now they are at 2 per cent."

The risk premium for small-cap stocks have also increased due to the uncertain outlook.

Overall, the local bourse is not expected to show any sign of a sustained recovery in the next few quarters.

Daryl Liew, chief investment strategist, Providend, said: "Markets will be rallying, correcting, then rallying, then correcting until we solve the major issues plaguing the market today."

He expects the STI to move within a range of 1,400 to 1,900 points.

Mr Scully noted: "We will probably retest the recent low. And I am looking at it to go down to the 1,200 level. I haven't changed my mind. We will probably see that some time in the third quarter. We will see quite negative second-quarter numbers."

One of the reasons for this is the fact that the stock market is less attractive compared to other asset classes.

Mr Liew said: "We prefer things like investment grade corporate bonds. Looking at it from an asset class basis, the yields you get from corporate bonds are pretty decent at this point in time. If you look at most recoveries, your credit spreads improve before the stock market improves."

But analysts also note that Singapore's market index did reasonably well compared to others in the region.

Hong Kong's Hang Seng Index is down 5.6 per cent, while Japan's Nikkei is down 8.5 per cent.

Mr Liew said: "The worst performing markets are the developed markets. (The) US and EU (are) down over 10 to 15 per cent year-to-date. The ones that have done extremely well is the Chinese-Asia market, (with) about 30 per cent returns year-to-date. But that is also because of the speculative money from local retail Chinese basically punting the market. Other Asian economies have been strong too, (with) Korea over 5 per cent and Taiwan over 10 per cent." - CNA/ms


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