Senior Correspondent
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A VOLATILE Straits Times Index (STI) that drew its inspiration from the Hang Seng Index and continued churning of penny stocks were the main features of a mainly weak and featureless trading session yesterday that ended with the STI losing 34.25 points at 2,237.20.
The backdrop was the same as the previous five occasions - investors apparently are now unsure of the 'green shoots' economic recovery story that was all the rage over the past three months. This has led to a loss in momentum and liquidity or, to put it simply, the trend bending.
The source - as always - of the browning of green shoots was Wall Street, where the major indices have stalled so far this week, reportedly because of uncertainty over the economy and concern over rising joblessness.
Most brokers however, remain unfazed by the sudden appearance of weeds, with mainly 'buy' calls issued.
UOB-Kay Hian (UOB-KH) on Wednesday, for example, in a 'buy' report on the property market titled 'On the Road to Recovery' said that the recovery in volume in the high-end segment implies investors are more accepting of present prices. With a relatively stable job market and sales momentum likely to continue, the local broker said that conditions are good for favourable land bank valuations, that is, the risks of writedowns is now lower.
'Also, the narrowing differentials between the current price levels and the discounted purchase price levels, taking downpayments into consideration, would reduce concern over defaults on units purchased under the deferred payment scheme,' said UOB-KH.
UBS Investment Research (UBSIR) in the meantime, yesterday issued a Singapore residential report titled 'Real Estate Values to Rise in 2010' essentially along the same lines, adding that with GDP contracting 10.1 per cent in the first quarter, the worst is probably over.
'We believe the completion of the two integrated resorts and recovery in global economic conditions could provide a 10 per cent increase in tourist arrivals in 2010-11, and attract more foreign buyers,' said UBSIR.
Among the few features of note in trading yesterday was the 23.5 cents or 41 per cent crash in the shares of shipbuilding firm Jaya Holdings to 34 cents with 72 million done after the company announced it is in talks with lenders over its credit facilities.
As for the key banking sector, most analysts continue to call 'buys'. CIMB is the latest, yesterday issuing an 'overweight' on the sector, saying that the recent sell-down represents a buying opportunity because of book value improvements, more benign asset quality deterioration and structural improvement in core banking services.
A useful view of markets was given in Merrill Lynch's inaugural Asia Strategist issue yesterday that was titled 'Taking a Breather'.
'We think the market correction that has begun is set to continue. A lot of good news looks to have been factored in by markets' said Merrill Lynch.
It said that although it would 'overweight' Asia ex-Japan in a global portfolio, this longer-term view has to do with the relative strength of local banking systems, scope for domestic demand surprise and the potential for consistent economic outperformance.
'Near term though, we think Asian equities have factored in a cyclical recovery and it is difficult to have much conviction on global growth sustainability given overcapacity in many industries and that very little deleveraging has taken place' said Merrill Lynch.
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