Senior Correspondent
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AS PREDICTED in this column yesterday, liquidity and momentum favoured stocks yesterday. Both factors featured prominently in a 43.23-point rise in the Straits Times Index to 2,576.66 that came in tandem with a 1.4 per cent gain in Hong Kong's Hang Seng Index. However - as also predicted in Monday's column - concerns over how Wall Street might open the week meant that prices finished off their highs. The STI, for instance, stalled at its closing level for the entire session, as the US futures market weakened by late afternoon.
Turnover was 3.2 billion units worth $2 billion excluding foreign currency issues, harking back to the halcyon days of 2007-08, when trading could best be described as 'frenzied'. The average unit value was 62 cents, suggesting penny stock fever was very much evident.
Brokers continued to flood the market with fresh reports. OCBC Investment Research, for example, said yesterday that it is 'neutral' on the property sector. 'We believe that (recent) strength in the property market was due to two key factors - pent-up demand after primary transaction volume reached a decade-low in 2008, and resilience in HDB prices,' it said.
'Low interest rates may have played a role as well. We maintain our neutral rating. We think valuations are currently over-optimistic, given the uncertainty that may lie ahead.'
Elsewhere, analysts were mixed in their response to Keppel Corp's latest results. UBS Investment Research called a 'buy' using a discounted cash flow model that set a $9.60 target price, saying the company's comment that it does not expect further order cancellations reinforces the view that capital markets and customers' liquidity positions have improved.
Daiwa Institute of Research, however, has a six-month sum-of-parts target of $5.44 for Keppel. It reckons a significant revenue deceleration looms in FY 2010-11 unless Keppel starts to win numerous, high-value contracts in H2 2009. 'We feel investors should avoid the stock of a company that has such potential to disappoint in FY10-11,' Daiwa said in a July 23 report.
Morgan Stanley called an 'equal weight' on Keppel with a $6.80 price target, and sees Keppel as second behind top pick SembCorp Industries. Keppel's shares dropped seven cents to $7.91 yesterday,
In an Asia-Pacific Economics report yesterday, Merrill Lynch said that recent macro numbers suggest that Asia is in the midst of a sharp, China-driven upturn supported by ample liquidity.
'There are big questions about the sustainability of growth into 2010 and the medium-term,' it said. 'These concerns plague every recovery, especially after a financial crisis. But they don't prevent the upturn, which typically surprises on the upside. Our regional growth forecasts remain 40 basis points above consensus for 2009 and 80 basis points for 2010, driven by exports and domestic demand.'
On the technical outlook for the STI, DMG & Partners had this to say: 'Initial resistance is now identified at the 2,605 mark where a series of daily highs are seen. North of that, further resistance in the form of the 100 per cent fibonacci extension of Wave 1 around the 2,700 level would be the next target. Immediate support is located at the 2,443-2,455 region where a series of daily lows are outlined.
'Additional support in the 2,380-2,389 area, as represented by the 14-day moving average, would also be available to cap any selling momentum should an unexpected downtrend occur.'
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