Senior Correspondent
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THE recent upward march in equities ran into a bit of resistance yesterday when a bounce in Hong Kong reversed in the afternoon session, coinciding with the weakening of the US futures market. These developments suggested a weak Tuesday for Wall Street and thus brought the Straits Times Index down from its intraday high of 2,469 to its final reading of 2,454.33, a nett loss of 1.82 points on the day.
Liquidity however, continued to be high, no doubt boosted by the return of investors worried about being left out of the recent rally. Excluding foreign currency issues, some 2.1 billion units worth $1.7 billion were traded, down marginally from Monday's $1.8 billion.
Brokers said that the recent better-than-expected earnings reported by the likes of Goldman Sachs, Intel and IBM appears to have brought back increased appetite for risky assets, though with US Federal Reserve chairman Ben Bernanke due to speak several times this week on the economy, Wall Street could be in for a volatile few days yet. Excluding derivatives, there were 191 rises versus 220 falls yesterday.
Among the broking reports of interest was a 'neutral' rating by CIMB on the property sector yesterday, in which it said the sector has risen 15- 18 per cent since its last sector update.
'While valuations are not cheap they are not excessive either. Average P/B (price/book) value ratios are now 0.9x versus the historical average of 1.1x seen in a recovery phase. We think as sentiment continues to boil and inventories worked lower, valuation discount gaps should also narrow,' said CIMB.
CLSA in a July 16 property sector report said valuation mismatches and weak rental yields appear to be already stalling the momentum in the secondary market.
'Banks are now offering valuations that are 10-12 per cent lower than the asking prices of home owners, restricting funding for completed homes. We remain of the view that Singapore home price momentum will stall, going forward,' said CLSA.
Deutsche Bank, in the meantime, called a 'sell' on CapitaLand in a Monday report, saying that in the absence of one-off gains to prop up headline earnings, the focus would be on high multiples and weak recurring core earnings. Its recommendation was based on the stock trading at a 14 per cent premium to RNAV (revalued net asset value) and an estimated 43x FY09 core earnings per share. CapitaLand yesterday fell five cents to $3.76.
Elsewhere, Morgan Stanley (MS) on Monday issued an 'equal-weight' rating on Neptune Orient Lines (NOL). 'The completion of the rights issue has raised US$1 billion in cash for NOL, which in our view should provide sufficient capital to ride the sharp and protracted multi-year container shipping downturn. However, we believe that NOL's valuation at 1.2x estimated 2010 P/BV is higher than historical mean levels and is rich as we expect NOL to post multi- year losses for 2009-2010,' said MS. NOL yesterday lost four cents at $1.63.
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