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(SINGAPORE) Call it the Hungry Ghost effect, if you will. But it seems that September has historically been a 'cursed' month for stock markets.
For example, it was in September last year that 158-year-old Lehman Brothers collapsed and everything fell apart.
Then there was the 1997 Financial Crisis, which began in late August, and got worse in September.
Black Monday of 1987 came after stocks started going downhill in late August, and the worst month of the Great Depression was September, 1931, when the Dow Jones plunged about 30 per cent.
So the big question is: what will the coming month bring?
BT polled some analysts here, but found that they appear to be divided on the 'September effect' theory and its impact on the Singapore market.
'I don't think any month will be worse off than others on a consistent basis, by virtue of the markets' efficiency. But I know some fund managers who believe in that September effect,' said DMG & Partners strategist Leng Seng Choon.
Carmen Lee of OCBC Investment Research pointed out that September is not traditionally the weakest month 'in terms of the number of down versus up years'.
'For example, in the past 24 years (1985 to 2008), the Straits Times Index was up in 12 years and down in 12 years in September.'
But she concedes that the decline in September is usually the steepest. For example, from 2000 to 2008, the average was a decline of 3.4 per cent in September versus minus 1.3 per cent (February) to 2.2 per cent (April and December) in other months.
'This was due to steep declines in 2000 (6.6 per cent), 2001 (negative 17 per cent), 2002 (minus 10.3 per cent) and 2008 (minus 13.9 per cent),' she added.
Indeed, CIMB's Song Seng Wun pointed out that 'over the last 24 years, there were only nine times the Straits Times Index gained in August.'
'In September, the result is half-half, but the average decline is larger than the average gain, so all in all, September is still not that great for STI.'
On a longer-term basis, however, research houses tend to take a fundamental view of the markets and here, the outlook appears much more cheery.
For example, Credit Suisse thinks that corporate earnings could see another leg-up as revenue picks up before costs, and predicts a 12-month STI target of 2,991.
'With 2010 forecast consensus earnings still down by 38 per cent since March 2008, and at only 74 per cent of the peak in 2007, there is probably more scope for consensus upgrades.'
In particular, Credit Suisse expects upgrades in the transport sector, where earnings are now 20 per cent of 2007's peak.
Likewise, DMG & Partners raised earnings forecasts for 19 per cent of the companies here, while 9 per cent of company recommendations were upgraded as share prices surged over the past few months.
'Liquidity is key to our 12-month STI target of 2,800,' said Mr Leng.
The money supply (M3) to GDP ratio, he pointed out, is expected to rise further and this should pull STI up over the next 12 months.
However, OCBC's Ms Lee felt that earnings were already revised in the July-August period, and 'unless there are major corporate developments in September, we believe earnings upgrades will be fairly modest'.
Although CIMB-GK analyst Kenneth Ng noted that Q2 this year was the quarter where positive earnings surprises outweighed disappointments, he cautioned against 'blindly betting on any stock at this stage'.
Instead, the brokerage favours industrials and property over financials on a sectoral basis.
Thus, City Developments and Ho Bee have been added to its list of top picks. Elsewhere, IndoAgri is now its top plantation pick, while Sembcorp Industries could benefit from a major order from Petrobras.
As for Credit Suisse, it maintains overweight on transport, banks, media, financials and property.
Its top picks are Singapore Airlines, United Overseas Bank and Singapore Press Holdings.
DMG & Partners prefers defensive stocks against aviation and plantation sectors.
Therefore, it is overweight on transport and telcommunications, but thinks that property will benefit from strong residential property demand.
'Our top buys are City Developments, Keppel Corp, SMRT and StarHub. To ride on the short-term downside, we would sell DBS, Jardine C&C, SGX and SIA.'
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