Senior Correspondent
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TO USE a football analogy, yesterday's session was very much a game of two halves - the first marked by a run-up in stock prices in response to Wall Street's overnight rise, and the second marked by a sudden reversal, most probably via programme sell orders from Europe. The net result was a 3.5-point loss for the Straits Times Index (STI) to 2,450.83, after it earlier touched an intraday high of 2,485.
'Wall Street has been up seven days in a row, so maybe it makes sense to anticipate a correction,' said one observer, while another pointed to reports out of Europe - suggesting its banks need more funding - as the trigger for the selling.
Whatever the case, with Europe opening in the red and Hong Kong closing sharply lower, the result was a swift reversal in the broad market's fortunes, resulting in a final advance- decline score of 173-217 excluding derivatives.
A handful of stocks livened up what was otherwise a cautious session. Keppel Corp, which is due to release its results soon and is expected to announce a generous dividend, saw its shares race up to $7.68 before ending at $7.50 for a net gain of 13 cents. City Developments - always a favourite with proprietary desks - saw its shares plunge 34 cents or 3.5 per cent to $9.49 on volume of 3.9 million units.
Banks were mixed - DBS and UOB rose, while OCBC fell. In a July 21 'overweight' on the sector, local broker AmFraser maintained its 'buy' on the three banks because no major surprises can be expected from their results.
'Share prices of local banks are still below our fair values as derived from the Gordon Growth Model,' it said. 'We think there could be room for an earnings upgrade especially if the banks' Q2 results were to turn out better than expected, and also if Singapore's domestic economy continues to recover.'
Morgan Stanley (MS) maintained an 'underweight' on DBS in a July 21 Research Tactical Idea, but called a short-term 'buy'. 'We believe the share price will rise in absolute terms over the next 30 days,' it said.
'This is because of an earnings release - DBS is due to announce Q209/H109 results on Friday, Aug 7. We see the prospect of DBS beating the street due to lower-than-expected loan loss provisions (driven by vast injections of liquidity into China), strong non-interest income (buoyant wholesale markets and the approximate $200 million gain from sale of its stake in HDFC Bank) and some unwinding of under-performance relative to peers. The stock trades at 1.1x FY09 estimated book - a 40 per cent discount to peers.'
MS reckons there is a 70-80 per cent chance of the scenario unfolding as described. 'Different time horizons drive the contrary call,' it said. 'We see the stock reacting to near- term earnings results rather than the prospect of a weak and shallow global recovery.'
Elsewhere yesterday, Venture Corp gained 16 cents to $8.29. Maintaining an 'outperform' on the stock, Credit Suisse (CS) said the counter has been driven by data ratifying a strong rebound in Singapore's electronics output in Q2, coupled with increased optimism on tech demand.
CS raised its target price from $7.90 to $9.25 and said that despite a recent rise, Venture looks attractive at 11x earnings, one standard deviation below its five-year mean.
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