Trading to be bound tightly

MARKET players expect trading to be confined to a tight range this week, with upcoming United States data, including pending home sales and initial jobless claims, possibly swaying sentiment.
Asian markets will also be reacting to depressing US jobs data, which was released after regional bourses closed on Friday.

The data showed that US firms last month suffered their biggest job losses in more than 30 years - worse than economists had expected.

The Dow Jones Industrial Average, however, shrugged off the news to close 3.1 per cent higher last Friday.

Last week, the benchmark Straits Times Index closed 4.24 per cent down at 1,659.17, but S-chips successfully bucked the declines, spurred by strong gains in the Chinese market, which saw the Shanghai Composite Index closing 7.9 per cent higher last week.

Singapore's FTSE ST China Index similarly was up 7.15 per cent for the week.

The confidence boost came after reports that the Chinese government would move to stabilise equity markets and support the country's banks by injecting more liquidity.

Whether S-chips will be able to sustain the gains will partly depend on macroeconomic data coming out from China this week.

Broadly, fund redemptions in the local market can be expected to continue into this week, posting a very good trading opportunity for short-term traders, said Westcomb Securities research head Goh Mou Lih.

Deutsche Bank said it expects a full-blown recession and gross domestic product contraction of 2 per cent next year, which means further downside risks to earnings next year.

'Singapore faces one of the sharpest economic slowdowns in the region, and we expect a relatively muted recovery in 2010,' said strategist Gregory Lui in a report.

'While a fair amount of bad news might well be discounted, earnings downgrades, signs of a deteriorating economy and tight credit markets are likely to overhang the market in the near term.'

Earnings are expected to decline by 8.4 per cent this financial year and another 1.8 per cent next year, with a possibility of further deterioration in earnings.

Mr Lui noted, however, that balance sheets of big listed firms are generally stronger now compared to previous downturns. Instead, the real risks lie with smaller companies, which are 'facing greater difficulty in obtaining credit than large companies'.

Analysts across several brokerages have expressed concern that banks could face further risks due to the protracted downturn, including a further slowdown in loans growth as well as rising non-performing loans as a result of the credit crunch.

The offshore marine sector, which experienced a boom last year, is also facing a slowdown.

The collapse in oil prices, which have slumped below US$44 a barrel, and tightening credit markets are likely to 'put pressure on oil services companies to review their previous rig orders',
said Merrill Lynch analyst Melinda Baxter.
Source: The Straits Times