Mar 10, 2014

    Lacklustre week ahead

    THE Singapore stock market is often dictated by news flow from overseas. On this front, it has been getting a great deal of mixed signals.

    The good news is that the United States economy is growing at a robust pace, as job creation in the world's No. 1 economy accelerated to 175,000 last month despite the harsh winter, from 129,000 in January and 84,000 in December.

    This may, in turn, boost US demand for more raw materials and manufactured goods from Asia, and give regional markets a fillip.

    But the bad news is that the steady rise in the number of new jobs may stiffen the US central bank's resolve to press on with its efforts in the coming months to further scale back quantitative easing, triggering more wild swings in the world's stock prices.

    So, as the new trading week kicks off today, the better-than-expected US job data is unlikely to resolve the uncertainties that traders are facing since December, when the US Federal Reserve made the decision to start cutting back on massive bond purchases, which had been responsible for the global stock-market rally.

    Worse, China is turning into another source of worry, as it reported that its exports last month tumbled 18.1 per cent from a year earlier.

    News of a China solar-energy firm's inability to make an interest payment on its bonds may also dampen trading sentiment across the region, as it puts a spotlight on the country's problematic corporate-debt mountain.

    The redeeming grace is that foreign fund managers are finding their way back to the region again, after trimming their exposure to Asian equities in recent months.

    Fund-flow data from Citi Investment Research shows that foreign fund managers bought US$895 million (S$1.1 billion) of Asia equities. But South Korea and China exchange-traded funds suffered a net outflow of US$2 billion.

    For Singapore traders, however, it is the lacklustre fourth-quarter results furnished by Singapore Exchange-listed firms that is the biggest headache.

    In its Singapore strategy report, Citi Investment Research noted that the latest quarterly results presented investors with more misses.

    It said: "Notable misses came from transport stocks such as NOL and SMRT, as well as some firms from the high-dividend-yielding group like Sats and M1. Disappointments were also seen in Genting, SGX and Noble Group."

    Real-estate developers share a bearish outlook on Singapore's residential sector, it added.

    Although component stocks in the Straits Times Index are not expensive - at an average price-earnings ratio of 14.9 times and 1.2 times price-to-book value - the lack of investor interest is a reflection of the uncertainties dogging the market, it said.

    It suggested that investors should focus on stocks which may get a boost from external growth, such as Keppel Corp and Wilmar International.

    DBS Vickers, however, noted in its latest strategy report that, while the latest quarterly-report season saw further downward revisions in earnings, the extent of the downgrades is tapering off.

    "We believe the key to re-rating Singapore equities will come with the end to the earnings-downgrade cycle. Sectors which could provide upside earnings are banks, plantations and water-treatment firms which may garner more contracts from China."

    DBS Vickers also suggested that investors load up on firms which offer attractive final dividends such as M1, ComfortDelgro and ST Engineering.