Weak Sentiment expected to hurt STI

Nov 5, 2007

TAKING STOCK: Weak sentiment expected to hurt STI
Concerns over the global economic outlook return to haunt Asian shares

WHEN the Straits Times Index (STI) bounced back in September after a mid-August meltdown sparked by the US sub-prime crisis, market players thought the worst was over. But the sub-prime mess has come back to haunt markets, which have been hurt by news of write-downs of loans and mortgage-backed securities at the United States' largest bank, Citigroup. Last week, a brokerage downgrade of Citigroup caused the market to lose confidence in continued economic growth.

A choppy week for the local market is expected, with uncertainty over the health of American banks and the impact on the global economy dampening investors' appetite. The market rally early on Thursday, helped by a quarter-point cut in US interest rates earlier, was short-lived.
Over the week, Singapore's Straits Times Index (STI) fell 56.23 points, or 1.5 per cent, to 3,715.32.

Asian markets fell across the board on Friday. Benchmark indexes in Hong Kong, South Korea and India, which had soared to record highs last week, had their gains curbed with a humble retreat.

LOOKING FOR CHEER

It is not all doom and gloom for Singapore investors, who will be relying on strong earnings results from local firms this week. While the US employment report released on Friday night was stronger than expected, worries about further write-downs on banks' loan portfolios and surging oil and commodity prices will still weigh on the minds of investors.

Given the jittery mood of the markets, any corporate earnings shock from the US next week may unsettle the market further.

'The US is giving out mixed signals, which leaves investors wondering what there is to celebrate,' said a dealer.

'The mood will be one of cautious buying.'

But some analysts say the magnitude of the loss is not expected to be as devastating as that during the mid-August meltdown, where the STI went as low as 2,962 points on Aug 17.
Some are suggesting a support level at 3,650, a 'healthy correction' for the index before it takes off again.

But it is not all doom and gloom for investors, who will be relying on strong earnings results from local companies this week. Due to release their quarterly results are stock-market bellwethers OCBC Bank, SingTel and SembCorp Industries.

Offshore marine stocks have taken an unfortunate beating since two cases of huge foreign exchange losses were reported at SembCorp Marine (SembMarine) and Labroy Marine.
However, these stocks are expected to pose a recovery. SembMarine has said that it has closed its forex positions, reducing uncertainty over the level of its losses.

A flurry of brokerage upgrades for China Milk, China XLX and China Sky are expected to provide some support for Chinese companies that are listed on the Singapore Exchange.