Business

Geopolitical fears curb STI's recovery

Index ends 13.8 points lower yesterday, as banking stocks come under pressure

Monday's 29-point bounce for the Straits Times Index may have been too much, too soon.

Yesterday, the STI's recovery from last week's North Korea-triggered sell-off ran out of steam when it finished a net 13.76 points weaker at 3,294.93.

Earlier in the day, the index had tried to extend its recovery when it rose 10 points, but with pressure on the banks, the attempt ultimately failed.

The reversal was in line with a similar move in Hong Kong and was said to have been due to caution over the US-North Korea stand-off.

Turnover amounted to a low 1.7 billion units worth S$1.13 billion and excluding warrants, there were 204 rises versus 294 falls.

DBS' strategist in the chief investment office, Mr Dylan Cheang, said in his Aug 14 report, Risk Assets: Shaken Not Stirred, that despite the market turbulence, it is evident from the magnitude of last week's correction that investors are still expecting an eventual peaceful resolution to the US-North Korean crisis.

"Time will tell if this constitutes pure complacency on the part of investors... expect market volatility to stay elevated in coming sessions until both parties return to the negotiation table," said Mr Cheang.

Among index stocks, Singtel ended S$0.02 higher at S$3.79 with 22.1 million shares traded.

In its Aug 11 "buy" note on Singtel, Deutsche Bank described the telco's results for its first quarter ended June 30 as a "mixed bag" - although revenues held up across businesses, margins were soft.

"Among the two core pillars, Australia mobile and Singapore enterprise businesses, which account for about 71 per cent of core operations, the former has maintained subscriber and revenue momentum," said Deutsche, setting a 12-month price target of S$4.40 for Singtel.

Macquarie Equities Research has maintained its "outperform" call on the stock with a 12-month target of S$4.32.

Banks were the main index movers with all three closing weaker.

In total, their falls cut almost 14 points off the STI.

In the second line, shares of fabricated metal products firm Nam Lee Pressed Metal ended S$0.005 higher at S$0.37 with 227,600 traded.

Phillip Securities Research (PSR) reviewed Nam Lee's latest results and maintained its "buy" call, with target price lowered from S$0.52 to S$0.51.

"Our target price represents an implied 11.5x FY17e forward P/E multiple, compared to the Straits Times Index twelve-month forward P/E multiple of 14.8x," said PSR.

"The last close price of S$0.365 offers an attractive estimated dividend yield of 5.5 per cent which does not take into consideration the cash hoard that continues to be retained on the balance sheet."

On the US economy, Macquarie Warrants (MW), in its Aug 14 daily, said Macquarie Equities Research (MQ) believes dwindling economic slack will likely put the economy on a collision course with potential output over the next six to 12 months.

"The employment-to-population ratio of 25-54 year olds is now at a fresh cycle high, but a gap remains with levels that were consistent with full employment in 2005-07..." said MW.

"In past cycles, this has not been that disruptive, because the country's demography required a higher pace of jobs growth. During this cycle, the dynamics are more severe.

"This means there is likely to be a sharp slowing in both jobs and real GDP growth as slack is eliminated."

In its technical analysis of the STI, OCBC Investment Research said it expects the index to hold around 3,250 to 3,330 in the near term and pegs the next resistance and support levels at 3,370 and 3,220 respectively.

This article appears in The Business Times today. For full listings of SGX prices, go to btd.sg/BTmkts