Aug 11, 2014

    Investors look to National Day Rally

    EVEN as heightened global risk aversion is seen weighing on market sentiment in the week ahead, some traders expect the benchmark Straits Times Index to take a positive lead from Wall Street, which defied rising tensions in Ukraine and Iraq to stage a strong rally on Friday.

    The Dow Jones Industrial Average climbed 185.66 points, or 1.1 per cent, to 16,553.93.

    Singapore shares on Friday ended the week down 1.7 per cent amid news that Ebola is now an international emergency and that American President Barack Obama had authorised air strikes against militants in Iraq.

    "Many small- and mid-cap counters are trading way below book value. If you can find some at 50 per cent discount to book value, that is pretty good," remisier Alvin Yong said.

    "Investors should put their nose to the ground and sniff out some good bargains."

    Meanwhile, many investors are eagerly anticipating Prime Minister Lee Hsien Loong's National Day Rally speech on Sunday, where he is expected to outline measures to improve the Central Provident Fund (CPF) scheme.

    Mr Yong said investors are watching for indications on whether these changes might include allowing investors the ability to use more of their CPF monies to invest in the stock market.

    PM Lee, in his National Day message on Friday, said the CPF scheme has worked well for many Singaporeans in helping them save for old age but acknowledged it can be improved, with more details of changes to be shared at the National Day Rally.

    Mr Lee added that the Government was studying how to make it more convenient for retirees to get cash out of their flats, "in a prudent and sustainable way".

    Traders are also eyeing key economic data this week, including Hong Kong's second-quarter gross domestic product report. It is China's broadest gauge of money supply and a key indicator of how successful Chinese policymakers have been in trying to rein in a credit binge and prevent defaults from spurring broader financial turmoil, while meeting a 7.5 per cent economic growth target this year.

    Other data to be released include United States retail sales and industrial production for last month.

    A Bloomberg survey forecasts that US retail sales likely rose last month for a sixth straight month, signalling the US economy's rebound in the second quarter may continue as the job market strengthens.

    Meanwhile, some market watchers noted that recently proposed reforms, in particular, a new rule imposing a minimum trading price of 20 cents for mainboard listings here, aimed at curbing excessive speculation and potential market manipulation, may potentially affect trading interest and market turnover.

    More than 200 listed companies, which have shares trading under 20 cents, will have about 18 months from now to meet that new requirement, mainly through a share consolidation, before they are put on a watch-list. In a share consolidation, a company reduces the number of its outstanding shares and, in doing so, boosts the share price.

    Mr Yong noted that a number of issuers have suffered share price declines since the new rules were announced on Aug 1, because of increased selling due to "uncertainty over what quantum of shares will have to be consolidated by these companies whose shares are trading below 20 cents".

    "There is uncertainty because share prices fluctuate constantly, and it's difficult to fix a reference price to determine the ratio of shares to be consolidated."

    Investors tend not to like share consolidation as that may lead to a greater likelihood of holding odd-lot shares, which they usually have difficulty selling, Mr Yong explained. Odd-lot shares refer to lots with fewer than 1,000 shares.