Experts say STI correction is healthy

This article is more than 12 months old

Straits Times Index falls 46.89 points with investors spooked by Dow's 665-point plunge on Friday

It is textbook economics. Signs of inflation in the US economy have sent bond yields rising and equities falling. Yet many investors were flat-footed.

Like its Asian peers, Singapore shares tumbled yesterday, spooked by the Dow's 665-point plunge on Friday, its worst since January 2016.

Wall Street was hit after a rise in January wages, the most since 2009, sparked expectations that wage inflation is finally picking up. It did not help that the Fed said it now sees inflation reaching its 2 per cent target this year, leaving bond traders guessing if there will be three or four rate hikes pending.

But experts here appear more sanguine, if not relieved, about yesterday's performance.

"It is quite a concern when markets keep climbing to the length of bull market we had without any correction. That is quite unusual. So, to have some correction is healthy.

"I would say this is a mild correction, a healthy one," Mr Joel Ng at KGI Securities' research department said.

Mr Naeem Aslam, chief market analyst at ThinkMarkets, also sees it as a healthy pullback.

"A 10 per cent correction could take place as this was long overdue. In other words, the long-term momentum for the equity markets is only easing off as these markets have been defying Newton's law of gravity."

The benchmark Straits Times Index (STI) opened at 3,483.07 before it ended at 3,482.93, down 46.89 points, or 1.33 per cent, from Friday's close.

About 2.8 billion shares, worth $1.8 billion, were traded, with 101 gainers to 445 losers.

Its near-term support is pegged at 3,450-3,480, said experts at DBS Group Research, which has a base-case year-end objective at 3,688, and an optimistic case scenario at 3,800.

Despite yesterday's correction, the STI is still some 20 per cent above last year.

"We expect 2018 to be positive, but with more volatility in the equities market," Mr Ng stressed.

The 30-day volatility gauge for the MSCI Asia Pacific gauge rose yesterday to the highest level in a year amid concerns over the surging US treasury yields. However, according to Bloomberg, the index remains above its trend line, suggesting its bullish trend may be intact.

Funnily enough, yesterday's equity rout came at a time when corporates are expected to unveil improved earnings.

"This year, we are expecting corporate earnings to be up 5 per cent to 10 per cent in general," Mr Ng said, adding that the global economic growth picture appears on track too.

After the market closed, FJ Benjamin Group (FJB) - one of Asia's biggest retail brand management companies - reported it has swung back into the black for the second quarter ended Dec 31 last year. It had a net profit of $961,000, compared with a net loss of $7.3 million a year ago as it completed its painful restructuring and terminated loss-making brands.

Laggards like Singapore Post bucked the market's downtrend. It closed at $1.43, up five cents, or 3.6 per cent, in heavy trading that saw more than 48 million shares changing hands.

Its third-quarter net profit rose 37.2 per cent to $43 million on better performance in its postal, e-commerce and property segments, and from a one-off $6.9 million adjustment from changes in the US corporate tax rate.

The people at DBS reckon that as the surge in blue chip stocks tapers off, interest should be diverted to small cap stocks.

"We like Roxy Pacific, Frasers Commercial Trust, PACC Offshore Services Holdings, Breadtalk and HRNetGroup," they said.

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