No surprise as STI falls in thin volume

by R SIVANITHY (2 Dec)

Index loses 2.4 per cent after last week's late, narrowly focused window-dressing push

PERHAPS not surprisingly, the Straits Times Index (STI) yesterday failed to follow through from last week's late window-dressing push, instead dropping 42.34 points or 2.4 per cent to 1,690.23 in extremely thin trading totalling 945 million units worth $745 million, excluding foreign currency issues.

Commodity stocks soaked up the bulk of what little volume there was, while among blue chips it was banks and property stocks that came under pressure.

The STI last week gained 70 points, in what was most probably an attempt to window-dress the month's performance using the mid-week announcement of a new US$800 billion lifeline by the US Federal Reserve for distressed US consumer debt markets as a launchpad.

However, the push was narrowly focused, centred mainly on index stocks and came with low volume - all of which suggested that it would not last.

This point was made by DMG & Partners in a technical view yesterday, where it said that although the index rose last week, any upside this week is expected to be short-lived.

'The mini-rally currently in play has not been accompanied by a significant increase in trading volume, an indication that buying momentum is not strong,' said the broker.

DMG noted that selling pressure would also probably be similarly contained because of low volume and set resistance at 1,760-1,770 and support at 1,570-1,580.

All three banks closed weaker, led by last week's top performer UOB which dropped 48 cents or 3.6 per cent to $12.70 with three million shares traded.

In a Nov 28 report on the sector, Macquarie Research said these are its operational expectations for the sector going forward: margins are expected to contract mildly, loan growth momentum to slow, non-interest income to soften on weak capital market conditions, and asset quality to progressively deteriorate.

Notwithstanding these, Macquarie recommended an 'overweight' on all three, with DBS and OCBC the top picks.

In the property sector, City Developments' (City Dev) 40-cent or 7 per cent plunge to $5.38 stood out after news that its hotel subsidiary M&C has been unable to finalise the sale of Millennium Seoul Hilton. In a 'hold' on City Dev, Deutsche Bank yesterday said this is negative for sentiment but there would be no impact on earnings.

In its 2009 Asia Pacific Portfolio Strategy dated Nov 29 and titled '2009 Outlook: Many rivers to cross', Goldman Sachs said investors should brace themselves for more risk than return.

'The investment outlook for Asian equities is probably one of low returns overall but with wide ranges ... the bottom line is that we think risks to growth remain on the downside notwithstanding countervailing policy actions. In turn, this is likely to increase the risks to corporate earnings and may keep valuations low.'

It added 'there are sufficient reasons to examine the possibility that the global downturn will be more prolonged than currently expected. These include a) negative momentum of consensus forecasts, b) the size of the debt burden in the US and c) the de-leveraging experiences of Japan and Sweden in the 1990s'.

Goldman also said it expects 15-35 per cent earnings declines in Asia for 2009 versus consensus of 5 per cent growth and that existing forecasts are unduly optimistic. China is its only 'overweight'; Korea, Taiwan and Australia were downgraded to 'underweight'; while Hong Kong and Singapore were classed as 'market weight'.

-Research Report by R SIVANITHY (2 Dec)