STI pulls back as Dow futures fall

by R SIVANITHY (4 Dec)

Straits Times Index sheds early gains in anticipation of Wall Street drop; index propped up by SingTel

So judging by the Straits Times Index's late dive, US stocks were expected to turn in a weak session yesterday. After rising as much as 30 points in the morning to 1,670, the Straits Times Index (STI) ended just 1.39 points up at 1,640.57.

A 150-point loss in the December futures contract on the Dow Jones Industrial Average and Europe opening an average of 2 per cent weaker accounted for the late nervousness, though the broad market clearly did not have time to react to the sell-off in the index - excluding index stocks and warrants, there were still 185 rises versus 120 falls in the rest of the market.

Hong Kong's Hang Seng Index continued to set the pace throughout the day, penny commodity and China stocks continued to soak up what little liquidity there was and as far as the Straits Times Index was concerned, it was almost entirely propped up by SingTel, possibly because it appeared as top pick in Merrill Lynch's 'most preferred' list. SingTel's eight-cent rise to $2.50 added 8.3 points to the STI.

None of this should come as any surprise. For one, anecdotal evidence is that many fund managers have closed their books early for the year and gone on holiday, a major factor behind the poor volume of the past few weeks.

In yesterday's session, a weak one billion units, excluding foreign currency issues, worth $744 million were traded.

Economic news coming out of the US has mainly been negative, with the worst manufacturing number since 1982 released on Monday. The latest jobs report is due on Friday. Analysts too are now increasingly bracing themselves for a weak 2009.

In its Dec 2 Emerging Markets Daily, for instance, Citigroup Global Markets said of Singapore that near-term growth prospects are grim with the economy unlikely to escape a contraction next year.

'The current recession is likely to continue for at least the next two to three quarters with GDP expected to contract in y-o-y terms, at least through 1H09,' said Citi. It said its GDP forecast is well below consensus or government forecasts and added that any uncertainty with forecasts relates to the magnitude rather than the likelihood of a contraction.

UBS Investment Research (UBSIR) issued its 2009 Outlook report yesterday titled Navigating a recession. It said there could be a rally of 15-20 per cent in the first quarter because markets are deeply oversold but its central thesis is for a grim economic outlook and high risk aversion.

UBSIR is expecting 30,000 job losses in 2009 - the worst on record for a single year but less severe than the cumulative 42,000 lost during the Asian financial crisis and the 79,500 lost during the two years when the tech bubble burst and Sars struck.

'We forecast a fair value of 2,100 for the STI at end-2009, assuming 12x trailing PE and a 33 per cent decline in earnings. We see a firmer uptrend mostly at the tail end of 2009 when the worst of the economic conditions are likely to have passed,' said UBSIR.

In a property wrap titled Buy another day, JPMorgan said with financing as uncertain as it is, the fundamental value of properties cannot be reliably determined. It noted that in previous cycles it took 11-13 quarters between peak and trough prices and that if the most recent peak was mid-2007, the next trough should be mid-2010.

-Research Report by R SIVANITHY (4 Dec)