Published October 16, 2008
CIMB believes STI could fall further to 1,613
Analysts' comments follow last week's massive sell-down
By OH BOON PING

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ANALYSTS reckon the worst is not over for Singapore's stock market. Instead, they see further downside for the Straits Times Index (STI).

Likely scenario: Using an average of trough values in recent crisis years, downside of 17 per cent from current levels for the ST Index (at 1,613) appears possible, says a CIMB report
According to a CIMB report: 'Using an average of trough values in recent crisis years, downside of 17 per cent from current levels for the STI (at 1,613) appears possible. If banks and properties fall back to Asian financial crisis P/BV levels, the STI could drift even lower to 974.'
OCBC Investment Research feels the deteriorating economic situation means highly geared companies and those that face near-term refinancing obligations will be hit by concerns over their ability to secure refinancing and soaring finance costs.
The analysts' comments come after last week's massive sell-down of stocks amid a tightening credit market. Also, Singapore's economy has slipped into a technical recession. The government is predicting a half percentage-point contraction in GDP in Q3 and has cut its full-year growth forecast to 3 per cent.
CIMB analyst Kenneth Ng paints a gloomy picture. 'STI earnings are predominantly propped up by the domestic banking and property sectors,' he says.
In the property sector, 'as global equity prices melt, sellers have become more desperate and are more willing to take discounts to sell out. Eroding prices in the secondary market will have an impact on the primary market and the current turmoil clouds the outlook for developers all the way till 2009'.
Banks also face the risk of higher delinquencies due to unemployment, Mr Ng says. 'From our understanding, banks do not typically ask for capital top-ups when the values of collateral fall. As long as monthly payments continue, non-performing loans are not recognised. Trouble arises only when payments lag. This typically unfolds when unemployment rises. On the ground, we are hearing of the beginning of job cuts in the financial sector.'
Due to the worsening economic climate, CIMB recommends investors take 'overweight' positions in offshore and marine, media, S-Reits and land transport.
Its top picks include A-Reit, City Development, SembCorp Marine, Singapore Press Holdings (SPH), Venture Corp and UOB. And its respective target prices are $2.60, $13.05, $5.25, $5.13, $13.42 and $21.78, respectively.
CIMB believes value has also emerged among mid-cap stocks after last week's sell-down, and has issued 'outperform' calls on China Sky, China Hongxing and China Zaino.
OCBC favours stocks in strong cash positions and has issued 'buy' calls on Biosensors ($1.02), Ezra ($3.30), SembCorp Marine ($4.98) and SPH ($5.14).