Sep 28, 2015

    More volatility expected on mixed signals

    THE volatility gripping regional markets look set to continue in the coming weeks, without clear signals on the pace and strength of the global economic recovery.

    Data over the past week has painted a mixed picture, with both bad and good news thrown into the mix.

    There was some good news from the United States, as the world's largest economy grew a better-than-expected 3.9 per cent in the second quarter, official figures announced on Friday showed.

    This was echoed in a speech Federal Reserve chair Janet Yellen gave on Thursday, which noted that a rate hike is still likely by the end of this year - a strong hint that US economic recovery is on track.

    But in Singapore, already-jittery investors will find little to be optimistic about, after August's manufacturing output plunged 7 per cent compared to the same period last year.

    With this piece of bad news, the probability of a technical recession - where the economy contracts for two quarters in a row - is higher, said OCBC economist Selena Ling.

    "The last time the Singapore economy experienced a technical recession was in the first quarter of 2009. To avoid a technical recession, September industrial production would have to expand by 0.1 per cent year-on-year or 5.5 per cent month-on-month, the highest since March 2015," Ms Ling said.

    As regional economic woes piled up - Japan reported its first decline in core inflation in over two years for August while a flash estimate showed China's manufacturing activity hit the lowest level in over six years in September - investors have rushed for the exits over the past week.

    The benchmark Straits Times Index (STI) fell 1.63 per cent for the week to a 12-month low of 2,832.64, alongside MSCI Asia ex-Japan's drop of over 4 per cent in the same period.

    Remisiers told The Straits Times that local shares will remain locked in sideways movements, with the STI range-bound between 2,800 and 3,000, until investors see some semblance of market clarity.

    "This may be as far away as the confirmation of a Fed rate hike, likely in December. Until then, my advice for concerned investors is to stay on the sidelines," remisier Chung Chun He said.

    Another remisier, Alvin Yong, said: "If you do plan to bargain hunt, remember that cash is king in these uncertain times. Look for companies with strong cash flows and stable income, such as those in the utilities sector."

    The four most active utility plays listed here are SIIC Environment Holdings, Keppel Infrastructure Trust, China Everbright Water and Hyflux.

    Compared with their 52-week highs, prices of the four counters have come down by an average of 31.9 per cent, a Singapore Exchange report said last week.

    Of the four, Keppel Infrastructure Trust - with waste-to-energy and Newater plants as well as City Gas on its portfolio - bucked the recent market trend with a 14 per cent rise so far this month, closing at 52.5 cents last Friday.

    Hyflux has also gained 10 per cent since mid-September to 69.5 cents on Friday, following its announcement that it will partner Mitsubishi to develop a waste-to-energy plant in Tuas for the National Environment Agency.

    Meanwhile, palm oil plays such as Wilmar International and Golden Agri-Resources may also be worth a look for investors seeking to build a position, as crude palm oil futures contracts trading on the Bursa Malaysia Derivatives have gained in recent weeks to reflect market concerns over El Nino's impact on production.

    Last Friday, Wilmar closed flat at $2.64 while Golden Agri-Resources gained 5 per cent to 31.5 cents. Both remained near their 12-month lows.