No surprise again as STI reacts to US dive

by R SIVANITHY (3 Dec)

ONCE again, there was no surprise in trading yesterday as Wall Street's already-anticipated - at least in this column - Monday crash reverberated around this part of the world.

With Japan caving in by 6 per cent, Hong Kong's Hang Seng Index losing 5 per cent, Australia 4 per cent and Europe opening an average 1.5 per cent weaker, the Straits Times Index stood little chance, though there was some consolation in the fact that it fell by only 51.05 points or 3 per cent to 1,639.18 and that trading was thin and listless.

Wall Street's loss of almost 9 per cent on Monday should not have surprised anyone, given that its major indices had been clearly window-dressed last week for the November month-end.

Still, news reports attributed the fall to official confirmation from the National Bureau of Economic Research that the US has been in recession for 12 months now, as well as a poor reading for the November Institute for Supply Management's index of manufacturing conditions. The latter figure came in at 36.2, below the consensus of 37, and was the weakest since 1982.

Independent research outfit Ideaglobal said in its Financial Markets Today that 'although the manufacturing landscape has been weak for some time now, this could mark the next leg down for prospects for the sector for months to come as conditions are unlikely to improve any time soon'.

Ideaglobal added the data confirms that domestic US weakness is now complementing deteriorating global conditions and that this should enhance the case for a 50-basis-point interest rate cut at the Dec 16 Federal Open Market Committee meeting.

Brokers attributed the subdued conditions here to the absence of many players either due to the holiday season and/or their losses over the past year, which by now would have reached extreme proportions.

Turnover, excluding foreign currency issues, was a poor 750 million units worth $770 million, with volume concentrated on commodity stocks like Golden Agri, Indofood Agri and Noble Group, and battered China stocks like Yangzijiang, China Hongxing and Cosco Corp.

Virtually the entire list of top 20 rises were structured put warrants on various indices, mainly the Hang Seng. DBS stood out among the banks as the only gainer, while after outperforming on the way up last week, UOB looks to be now doing the same on the way down - it dropped 48 cents on Monday and 70 cents yesterday to end at $12.

Credit Suisse (CS) maintained its 'underweight' on the property sector. In its Asian Daily yesterday, CS said it expects news flows from the sector to remain negative as default/credit risks rise in a recessionary environment. Its bear-case RNAV for CapitaLand is $1.70 and for City Developments is $4.51.

Merrill Lynch, in the meantime, on Monday maintained a 'neutral' view on City Dev with a $5.86 target price, following news that the latter's hotel subsidiary has not been able to sell the Millennium Seoul Hilton in Korea.

CapitaLand yesterday fell 10 cents to $2.49 with 14 million traded, while City Dev lost 13 cents at $5.25 with 2.5 million done.

-Research Report by R SIVANITHY (3 Dec)