Senior Correspondent
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HELPED by a push on SingTel and property stocks, the Straits Times Index yesterday gained for a fourth consecutive session, up 13.8 points to 2,642.23 despite weakness in Hong Kong that cut 1.04 per cent off the Hang Seng Index. Penny stocks were very much in focus once again - volume traded excluding foreign currency issues was 3.3 billion units worth $1.8 billion or about 55 cents per share.
The index moved most of the day in tandem with the Hang Seng but a firm opening for Europe probably brought out buying in anticipation of a rise in Wall Street.
The top STI gainers were SingTel and City Developments, whose combined rises added five points. Gains in Jardine stocks Hongkong Land and Jardine Strategic contributed a further three points. In all, 20 STI components rose versus seven falls.
In its Aug 26 Singapore Strategy report, Citi Investment Research said that it thinks the local market will overshoot its mid-cycle valuations, taking the STI to around 3,000 (1.78x P/B or price/book) or about 0.5 standard deviations above the P/B mean. However, although Citi said it won't rule out a bull market scenario, for now, such a scenario lacks conviction.
'Bull market STI valuations (defined as more than one standard deviation above P/B mean) occurred historically only when GDP growth reached 8 per cent and above. Past episodes included 1993-96 (Asian miracle), 1998/99 export-led recovery and 2006/07 investment boom. . . a new bull market will have to count on the success of the two integrated resorts, a sharp private investment recovery and accommodative fiscal and monetary policies for an extended period,' said Citi.
Using 3,000 as the STI's target, Citi then called a 'buy' on the Singapore Exchange (SGX) with a $10 target using an average daily turnover assumption of $2.1 billion and 23.6 times earnings.
In its 'investment risks' section, Citi said that SGX has already rallied 117 per cent from its $4 trough and a fundamental medium-term risk is the entry of a competitor exchange which could materially affect SGX's equity pricing structure. SGX's shares yesterday slipped one cent to $8.72 with 4.3 million units traded.
UBS Investment Research in its Aug 26 Market Wrap said that the speed and magnitude of the collapse and recovery is reminiscent of the Asian crisis.
'Between Sept 1998 and Jan 1999, the index rose 90 per cent and gave back 35 per cent of the gains over three weeks before resuming the rally. This time, if history is repeated, giving up one-third of the gain would lower the STI to 2,280.'
UBSIR also said that it thinks policy tightening and a double-dip are unlikely and forecasts the STI at 2,960 by the end of 2010.
In its roundup of the tech sector yesterday, DBS Vickers said that despite falling sales, margin improvements led to more upside surprises. 'Material costs were also lower than last year . . . even if demand proves to be weak, chances of stockpiles are low, considering lean inventory levels among retailers and OEMs and little capacity expansion in general. We also believe if demand recovery turns out to be weak, there would not be sharp plunges in operating performances as bases are low in 4Q08/1Q09,' said DBSV.
The local broking house said that it is positive on Venture Corp and Chartered Semiconductor but negative on Creative Tech since the latter's recent rally has overshot its fundamentals.
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