May 19, 2014

    Overseas worries dull trading on STI

    AN UNCERTAIN macro outlook overseas has left the local market struggling for direction recently, and action - if any - has been driven more by corporate developments at individual companies.

    The Straits Times Index (STI) rose 10.46 points or 0.3 per cent last week to close at 3,262.59 on Friday. The week's gains took the benchmark closer to its peak for this year of 3,283.93 on April 24.

    The index is just about flat for the month, down 0.06 per cent from its close on April 30.

    The popular adage of "sell in May and go away" would point to sharp market falls this month, but investors have been spared any serious selling action so far.

    There has been very little in terms of macro developments to drive the bourse in either direction.

    "The past week saw more volatile trading in share markets, with mixed economic data and corporate news in the United States and concerns about Ukraine weighing on US and European shares," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors.

    "US shares were flat, while euro zone and Japanese shares fell 0.7 per cent, but Chinese shares gained 0.8 per cent."

    Not surprisingly then, the focus has been on developments at individual firms rather than on any overall theme for the market.

    Singapore-listed companies have been busy unveiling their financial results, so much of the trading activity has been based on their scorecards.

    Commodity trader Noble Group, drinks company Thai Beverage and offshore firm Nam Cheong are among those whose share prices have been boosted by better-than-expected results.

    In contrast, the stocks of City Developments have suffered since it posted a drop in first-quarter profit - the loss for the week was 5 per cent, with the counter closing at $10.35 on Friday.

    However, the earnings reporting season is drawing to a close. Singapore-listed companies have up to 45 days to report quarterly results - making last week the deadline for the reporting period that ended on March 31.

    The deadline for full-year numbers is 60 days, so there will still be a handful of earnings announcements from companies for the year ended March 31.

    In a note on the Singapore market this month, Credit Suisse said valuations of local shares are near five-year averages.

    Valuations for developer stocks have also bounced back, closing at around two-year averages.

    "Even though Singapore has underperformed the region year-to-date, it has done well since the peaks in May 2013," said Credit Suisse.

    "Earnings should matter more" in driving the market higher from this point on, it added.

    Of the local blue chips, it prefers DBS Group Holdings and Keppel Corp.

    Meanwhile, Mr Oliver warned that global shares could be vulnerable to a 10 to 15 per cent correction around the middle of the year.

    "However, any mid-year correction is likely to be in the context of a continuing upward trend for shares," he said.

    "Share market fundamentals remain favourable with reasonable valuations, global earnings are improving given rising economic growth, and monetary conditions are set to remain easy for some time."

    This week, investors will look to the minutes of the latest US Federal Reserve meeting, to be released on Wednesday.

    The document could provide clues to when the central bank intends to raise benchmark interest rates.