A week spent tracking Wall Street, Citigroup

by R SIVANITHY (29 Nov)

A WEEK spent anticipating how Wall Street might perform later each day as well as wondering what Citigroup's fate might be. These in a nutshell are the major themes of the week just past, the other being that prices here may actually tend to lead Wall Street, rendering the Straits Times Index as possibly a better indicator of how the US market might move than even the US futures market.

Underpinning sentiment was mid-week news that the US Federal Reserve, which can basically print money if it sees fit, will extend a US$800 billion lifeline to distressed consumer debt markets to try and shore up the economy, and that the US government will essentially bail out Citigroup.

So far, Wall Street appears determined to take this as good news with its major indices responding positively, though it has to be stressed that bear rallies can appear deceivingly strong as many have turned out to be this year and there is no reason to expect this time to be any different.

Here, the Straits Times Index firmed by 70 points or 4.2 per cent over the course of the week to 1,732.57 with yesterday's session contributing 22.05 points.

Much of yesterday's gain could be attributed to month-end - and for some fund managers possibly even year-end - window dressing, while the same can possibly be said of markets everywhere.

All three banks benefited from this propping-up exercise, though DBS, despite being pushed up by 33 cents yesterday, still lost a nett 20 cents over the week at $9.40.

In a Thursday overview on Asia-Pacific banks, Merrill Lynch said it is cautious on Singapore banks because of potential negatives such as 1) slowing loan growth 2) a drop in market-related fees and 3) a cyclical rise in credit costs, all of which could depress 2009 earnings.

'The sector trades at mid-cycle valuations - 1.4x book - but that is not 'cheap' in our view given we are entering a down cycle,' said ML. It rates DBS and OCBC as 'underperform' and UOB as 'neutral'.

Keppel Corp, however, yesterday collapsed 60 cents or 12.5 per cent to $4.20 with 27 million shares traded following news that its customers are reviewing their options for $1.2 billion worth of orders.Possibly also a factor was a Wednesday downgrade by Merrill Lynch, which cited concerns about Keppel's exposure to property, oil refining and telecoms.

In a Thursday update, ML said although the impact on earnings is minimal, the news is likely to put a dent on investor confidence in the security of Keppel's current order book. 'If the sector experiences a deep and prolonged slowdown, (Thursday's) announcement is likely to be a sign of future order cancellations,' said ML. For the week, Keppel lost a nett 40 cents or 8.7 per cent.

In his weekly roundup, AMP Capital's head of investment strategy Shane Oliver, said 'while all the activity by governments around the world to get their financial markets working again and stimulate their economies won't head off the recession which is already in train, it does provide confidence that there will be an eventual economic recovery . . . While it's too early to say whether the bear market is over, there is still a good chance shares will rally into year end.'

-Research Report by R SIVANITHY (29 Nov)