Jul 07, 2014

    Sunny in the US, cloudy on local bourse

    WHAT a contrast!

    On Wall Street, bulls continued to rampage non-stop last week as they sent indicators such as the S&P 500 Index to record levels.

    The exuberance for United States stocks was stoked by a rosy US employment report which showed that non-farm payrolls rose by 288,000 last month, despite US economists eyeing a gain of only 215,000.

    It led to some stock pundits predicting that the S&P 500 Index may advance further, even though it is already up 7.42 per cent so far this year.

    Last week alone, the S&P 500 rose 1.44 per cent.

    But on the local bourse, traders were finding it difficult to stay awake, as they coped with range-bound prices of blue chips and a drastic fall in trading activities, which they blame on investors switching their attention to the football World Cup.

    Not surprisingly, the Straits Times Index (STI) ended almost unchanged for the week at 3,272.25. For the year so far, it has lagged behind the S&P 500, enjoying a gain of only 3.31 per cent.

    Still, if it is any consolation to traders here, the rest of the region has underperformed Wall Street as well.

    CIMB Research has reported that the MSCI Asia-Pacific Index, which tracks stock markets in Asia, was up 1.7 per cent last month. This was lower than the 1.8 per cent registered by the MSCI World Index and the 2.4 per cent gain made by S&P 500 over the same period.

    Against this backdrop of underperformance by regional bourses and low market volatility, analysts are tempering investors' expectations of further gains in Singapore stocks.

    UOB Kay Hian, for example, said in a report last week that it was sticking to its year-end forecast of 3,400 for the STI.

    It said: "Given the limited 4.4 per cent upside (for the STI), we think stock picking will continue to be a focus.

    "Valuation-wise, the market's 15 times 2014 forecast price-earnings (PE) is at a small 7 per cent discount to its long-term average PE of 16.2 times."

    Attractive investment themes include possible merger and acquisition plays, energy proxies and stocks with regional growth stories, it added.

    So one way to lure investors back into the market is to give them a good reason to want to buy shares.

    Take the 9.45 per cent surge in Hotel Properties' (HPL's) share price on Thursday. It followed an OCBC Investment Research report that the company's Orchard Road assets might enjoy a "surplus net present value" of $1.25 billion if they are redeveloped.

    This was in view of the recent takeover offer made by two of its big shareholders, Ong Beng Seng and Wheelock Properties, which had led to talk that they might be trying to unlock the value of HPL's Orchard Road assets.

    What is also interesting to note is the growing debate over the impact of the softening property market on local stocks. UBS, for example, has called an underweight on Singapore equities, which it saw as being weighed down by concerns over a weak property sector and a tight labour market.

    This also seems to be the big concern among other research houses, as they ponder the potential oversupply of new units in the property market.

    Citi Investment Research noted that the ability of developers to attract buyers in May after cutting prices may make it less likely for the anti-speculative measures put in place by the Government to be eased this year.

    Any easing will more likely take place "closer to elections 2015 when prices should have fallen sufficiently to improve home affordability (helped as well by rising income), yet not enough to bring buyers at the peak into negative equity", it said.