More selling as recession fears mount

by R SIVANITHY (20 Nov)

ST Index sheds 3 per cent as part of region-wide stocks hammering after Wall Street dives

WALL Street's 5 per cent plunge to a five-and- a-half-year low on Wednesday sent stocks in this part of the world tumbling yesterday, serving a grim reminder to investors everywhere that the worst is not over for equities.

The US market's rout came after the release of more poor economic numbers, including thin housing starts and low consumer prices - with both figures fuelling deflationary worries.

Adding to the gloom yesterday was news that Japan's exports fell the most in six years, confirming that the global slowdown is taking a firm grip.

The result was a 4 per cent slump in Hong Kong's Hang Seng Index and a 51.64-point or 3.1 per cent loss for the Straits Times Index to 1,613.95, taking it about 13 points above its most recent low of 1,600.28, reached on Oct 24.

Banks were again hit. All three closed weaker, led by DBS's 34-cent slide to $9.16. Daiwa Institute of Research said in a Wednesday report on Singapore banks that it sees no reason to change a previous 'negative' view of the sector.

'We believe the quarterly net profit decreases (an average of 23 per cent) experienced by all banks for Q308 are a precursor of the weak operating conditions they will face in 2009 and 2010,' Daiwa said.

'We believe the sector is set for another depressing industry-wide decline of 8.2 per cent year-on-year for 2009, led by further year-on-year declines in fees and other income and a flare-up of loan-related allowances.' It maintained its 'underperform' ratings on UOB and OCBC, and a 'hold' on DBS.

Government-linked conglomerates continued to be sold down yesterday, though Keppel Corp managed to close unchanged at $4.49 after touching $4.30. Sembcorp Industries (SCI) dropped 12 cents to $2.03, while Sembcorp Marine (SMM) fell 15 cents to $1.65.

In a Nov 18 report, Deutsche Bank maintained a 'buy' on all the three stocks, with price targets of $7.80, $3.55 and $2.45 for Keppel, SCI and SMM respectively.

'While near-term uncertainties remain due to the global financial and economic turmoil, we believe long-term trends remain intact for the offshore and marine sector and through a flight to quality, may likely see future orders gravitate towards the more established players,' said Deutsche.

Credit Suisse maintained its 'underweight' rating on Singapore in a Nov 19 strategy report, saying 'low solvency risk does not mean no risk'. It did state, however, that Singapore Inc is well-placed to weather the storm because corporate debt at 32 per cent for FY08 is easily manageable.

In his latest Insights, AMP Capital's strategy head Shane Oliver said recession is now advanced in key developed economies such as Japan and Europe, and it is only a matter of time before the US officially declares that it too is in recession.

He also said that although there are some common features, this is not a normal slump that typically comes as part of a boom-bust cycle.

'Two considerations make this global slump potentially more serious and hence add to the level of uncertainty,' he said. 'First, we are faced with significant systemic risk as the flow of credit has been radically impaired. On top of this, most countries are weakening at the same time. The synchronisation in economic downturns in the US, Japan and Europe is now making the global downturn worse.'

-Research Report by R SIVANITHY (20 Nov)