Jun 15, 2015

    US Fed, Greek fears may make for a volatile week

    THE week ahead is looking volatile again for the local market, with the next United States Federal Reserve meeting set to dominate investor attention while the Greek debt crisis continues to cast its shadow.

    Already, signs of uncertainty are returning to markets in the US. The Dow Jones Industrial Average was up marginally last week by 0.3 per cent as Wall Street cheered better retail sales figures, but slipped 0.78 per cent on Friday when European Union officials were said to have held their first formal discussion on the possibility of a Greek default.

    The Greek left-leaning Syriza government and EU officials are still mired in disagreement over how to unlock the bailout funds that heavily cash-strapped Greece must secure by the end of this month to avoid a debt default.

    "Time is running out for Greece. To clinch a deal at the June 18 Eurogroup meeting of finance ministers in time for the June 30 expiry of the current bailout deal, the Greek government has to shift its position very soon, that is within about three days," Holger Schmieding, analyst at German investment bank Berenberg, told Reuters on Saturday.

    Meanwhile, the Fed, at its two-day monthly meeting this week, is expected to send more signals of an interest rate hike this year.

    Following news last week that a better than expected 280,000 jobs were created in the US last month, a September rate hike looks increasingly likely, CMC Markets analyst Nicholas Teo told The Straits Times.

    "Against that backdrop, volatility will be the key theme for at least the next two weeks. If the meeting does give a firm message on a September rate hike, we will see the local market coming down again after the recent recovery."

    A three-day recovery sent the Straits Times Index (STI) 0.61 per cent higher for the week to 3,353.85, after going below 3,300 for the first time in six months.

    "But I believe the Straits Times Index will continue to have a strong support level at around 3,300 despite the concerns. It's already been tested once and still holding. In fact, local stocks may see an upside on funds withdrawn from other markets amid the macro uncertainties," Mr Teo said.

    The past week also saw Noble Group under scrutiny again, with the embattled commodity blue chip going on a roller-coaster ride.

    On Thursday, the counter surged 9.3 per cent from its six-year low to hit 70.5 cents as chairman Richard Elman sought investor support with an open letter and the company bought 25 million of its own shares. But the recovery was short-lived, and the stock fell 2.84 per cent to 68.5 cents the next day.

    Jefferies Equity Research still sees an upside for Noble, giving it a buy rating with a target price of $1.30 in a note last week.

    Noting that Noble's drastic fall in the past two months was largely the result of intense short-selling, Jefferies said the shares may rebound if Noble launches a sizeable share buyback using its sizeable liquidity headroom to trigger a short squeeze. The price-to-earnings ratio will also turn attractive if Noble can achieve forecast earnings of US$525 million (S$705 million) for this year.

    "Catching a falling knife is always a difficult proposition, but it sometimes rewards investors disproportionately for the risks taken," Jefferies noted.

    Another struggling blue chip that has received brokers' vote of confidence is Sembcorp Marine. Nomura gives the offshore rig maker - which fell around 27 per cent in a year to $2.93 - a buy rating and target price of $4.04.

    "We expect Sembcorp Marine to ride on its market share gain in newbuild drillship orders since first-quarter 2012. In our view, its proprietary Jurong Espadon compact drillship design has cost and operational advantages over existing designs," it said.