Saturday 7 November 2009
Not a great trading week; STI up just 7 pts
Perhaps the most worrying thing if you’re a trader has been the dip in daily volume over the past two to three weeks. Sure, the figures appear decent at first glance. Average turnover of just over $1 billion this week, compared to the $500 million-$600 million in the first quarter, appears favourable.
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Not a great trading week; STI up just 7 pts
By R SIVANITHY
SENIOR CORRESPONDENT
Perhaps the most worrying thing if you’re a trader has been the dip in daily volume over the past two to three weeks. Sure, the figures appear decent at first glance. Average turnover of just over $1 billion this week, compared to the $500 million-$600 million in the first quarter, appears favourable.
But speak to dealers and the feedback is virtually unanimous - business is slow and most of the volume results from a few large orders, and house traders and brokers trading on their own accounts.
The reason for the lethargy is, of course, wobbly Wall Street. Even though the Dow Jones Industrial Average managed to again cross the 10,000 level on Thursday, investors seem unconvinced on the efficacy of the US domestic recovery story.
With markets now universally infused with Wall Street’s scepticism, the preferred approach to equities appears well and truly to be ‘buy the dips, sell into strength’ or, in some cases, ‘sell in anticipation, buy on news’.
There is, of course, a third variant - ‘sell in anticipation, keep selling on news’. But this hasn’t been detected - yet.
The outcome here was a week spent watching Wall Street, with traders trying to divine what the US market might do in the immediate future. After yesterday’s short-covering aided a 28.86-point bounce to 2,658.21, the Straits Times Index (STI) managed a seven-point gain for the week.
The broad market has, perhaps, been the biggest victim of the scepticism - or lethargy, if you prefer. Penny stocks, which a few weeks ago traded in the tens or even hundreds of millions, can now barely muster turnover of a few thousand. This has caused broad-based weakness not captured by the STI. Yesterday, for example, there were 223 rises versus 151 falls excluding derivatives - softness not readily apparent from the index movements.
Corporate developments of note included mid-week news that Sembcorp Marine will develop a huge new shipyard at Tuas. Analysts generally welcomed the news, with ‘buy’ calls issued by Deutsche Bank (target $3.90), JPMorgan ($4.25) and UBS Investment Research ($3.90).
Two brokers, however, were less optimistic - Daiwa Securities and Morgan Stanley (MS), with respective targets of $2.63 and $2.80.
Daiwa said SembMarine is a 2011 earnings risk story that will become evident in 2010 if the pace of new orders slows, as Daiwa expects. MS said the stock is trading at 15x 2011 estimated earnings per share (EPS). ‘We think offshore and marine stocks like SembMarine must demonstrate medium-term EPS growth to justify a further re-rating of multiples,’ it said. ‘We believe this is a challenging task.’
SembMarine added four cents at $3.44 yesterday but was down five cents for the week.
In its November Market Outlook and Strategy, UOB-Kay Hian said the STI is now trading at a price/book (P/B) of 1.63x, a slight discount to the long-term mean P/B of 1.75. ‘The reporting season is well under way and there have been several positive surprises, particularly from UOB and OCBC and selected property companies,’ it said.
‘Despite the positive earnings, the market is likely to remain range-bound, particularly on concerns that global markets may have over-discounted the recovery and that fiscal tightening or cut-backs in stimulus could dent global recovery.’
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