May 12, 2014

    STI holds steady amid sluggish trading

    THE popular market adage is "sell in May and go away", but so far this month, investors seem to have just gone away without doing much selling.

    Since the end of last month, the benchmark Straits Times Index (STI) has held fairly steady.

    It closed at 3,252.13 points on Friday - down just 12.58 points or 0.4 per cent for the month so far.

    Notably, the local market is one of the few bourses in the region to have stayed in the black for the year.

    Its gain for the year to date is 2.7 per cent, thanks to solid rises between the middle of March and last month.

    In contrast, Hong Kong's Hang Seng Index has declined 6.2 per cent so far this year, and the Nikkei 225 in Tokyo has backtracked 12.8 per cent since Jan 1.

    Not only are prices flat - so are trading volumes.

    The average daily turnover this month has been just 1.56 billion shares worth $981 million, far lower than the daily average of 2.87 billion shares worth $1.22 billion posted over the past year.

    Describing the current market as "quiet", remisier Desmond Leong said trading volumes are usually "a lot better" in the first half of the year.

    "Although we had a rally about two weeks ago, the volumes seem to be dwindling," he added.

    NetResearch Asia said in a note last week: "There are now expectations that May could prove to be a quiet month of consolidation, given the decent gains in April and the absence of fresh leads either way."

    The "sell in May and go away" maxim describes the theory that shares tend to do worse in the May-to-October period than in the other six months of the year.

    Believers in this theory will pare their holdings in May and then - in Western countries - scoot off to enjoy the summer and autumn months before returning to the market around November.

    Market lore aside, investors received both good and bad news on the macro front last week, making the bourse's flat performance unsurprising.

    Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors, noted that dovish comments by United States and European central bankers, along with mostly good profit news, provided support for global markets.

    However, worries about technology stocks and uncertainty over Ukraine continued to weigh on sentiment, he added.

    Some analysts remain generally confident about the local market.

    "The Singapore market has outperformed some regional indexes so far this year," said Carmen Lee, head of research at OCBC Investment Research, in a note last week.

    "Despite recent gains, we believe that valuations remain undemanding and below those of key regional markets, plus there is the added bonus of a decent dividend yield of 3.3 per cent."

    Ms Lee said that key risks for the bourse include a slowdown in China and a prolonged decline in the local property market.

    Recent excitement on the local mergers and acquisitions scene indicates that valuations are not expensive, and that players with huge cash reserves are in a good position to buy assets or companies, she added.

    "Other undervalued or (illiquid) stocks are also likely candidates for mergers and acquisitions," she said.

    She notes that a stock-picking strategy is still preferred for the Singapore market, and she is "overweight" for the oil-and-gas and health-care sectors.

    She also likes some quality blue chips and high-yielding stocks, including DBS Group Holdings and Keppel Corp.