Saturday 3 January 2009

Will 2009 be the Year of the ‘Two-Tier’ Market?

Trading this week lent support to this description as a push on index stocks helped the STI rise 104 points or 6% over the week to 1,829.71

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Guanyu said...

Will 2009 be the Year of the ‘Two-Tier’ Market?

Trading this week lent support to this description as a push on index stocks helped the STI rise 104 points or 6% over the week to 1,829.71

By R SIVANITHY
3 January 2009

The local stock market has often been described as being comprised mainly of two tiers - the large caps on one end, penny stocks on the other and very little in between.

Trading this week - indeed for much of the past six months - lent support to this description as a push on index stocks helped the Straits Times Index (STI) rise 104 points or 6 per cent over the week to 1,829.71 while at the other end, China speculatives and commodity plays held sway.

Of course, much of the index’s gains could be traced to a handful of index components and as the curious mid-week incident involving CapitaMall Trust (CMT) illustrated, those same gains could be wiped out in the blink of an eye. CMT inexplicably shot up on Monday, only to lose almost all of this the next day. The Singapore Exchange said that it was looking into the odd movement.

Similarly, the index stood at 1,799 just before yesterday’s post-closing adjustments, just short of the 1,800 mark, only to then finish at 1,829.71 for a nett gain of 68.15 points. Whatever the reason for CMT’s odd rise and yesterday’s late push above 1,800, it did help the local market enjoy yet another bear market rally that was underpinned by hopes that the US authorities’ non-stop printing of money will eventually bail the world out of the trouble that their lax measures created in the first place.

Among the corporate developments of note was Cosco Corp’s warning that its 2008 profit will be lower than 2007 because of added provisioning and an inability of some of its customers to pay on time. This led to a slew of downgrades which apparently have not hurt the stock too much, the counter dropping only 4.5 cents over the week to 92.5 cents.

Nomura and Deutsche Bank were among those to call a ‘sell’ with target prices of 66 and 41 cents respectively. Deutsche’s target is based on 0.7x FY09 estimated book value.

Among the banks, it was UOB which provided sector leadership, gaining $1.26 or 10 per cent over the week to $13.38.

JPMorgan, however, in a Dec 30 report downgraded UOB to ‘neutral’ as the stock can no longer be classified as ‘defensive’. It has a December 2009 price target of $15 versus $20 previously, based on reduced earnings estimates.

‘We expect lower earnings to drive the stock in 2009. . . we recommend booking profits on the stock as the current premium should reverse in 2009. . . the earnings decline will be led by negative operating leverage and the SME (small and medium enterprises) portfolio - both of which are structural; hence the fallout would be relatively difficult to manage,’ said JPMorgan.

Deutsche Bank, in its Singapore Outlook 2009, said that with growth expectations sliding, fiscal and monetary policies remain fluid.

‘Easier fiscal policy could lead to more bond supply, but supply impacts should be easy to manage. On monetary policy, the market has good reason to position for MAS (Monetary Authority of Singapore) easing, implying selling SGD (Singapore dollar) on strength. . .

‘While the long-term growth shock priced in by the recent rise in the equity risk premium would suggest equities are cheap to bonds for long-term investors, markets won’t be prepared to express that view until the appearance of a bottom for the US economy.

‘A flight to quality but into long bonds seems likely to continue for at least the first two quarters of 2009.’