Published January 17, 2009

A week for selling into strength

By R SIVANITHY
SENIOR CORRESPONDENT

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'SELL into strength' was Citi Investment Research's recommendation with regard to property stocks at the start of this week but it might as well have applied to the broad market as well, such was the pattern of trading throughout the five days where any sign of strength was quickly overwhelmed by selling pressure.

To be honest, most of the few bounces that occurred during the week probably originated from short-covering more than any genuine buying, the momentum for the near term clearly being to the downside given the still-deteriorating US, domestic and global economic outlook.

Thanks to yesterday's short- covering bounce of 26.39 points that was most likely in anticipation of Wall Street enjoying a similar rebound on the same day, the Straits Times Index's loss for the week was limited to 76 points or 4.2 per cent at 1,730.45.

For the year to date, the STI is now down 31 points, having only last week closed at 1,924 on Jan 5.

The end-2008 rally that took the index above 1,900 had been propelled by hope more than anything else - hope that the incoming Obama administration in the US can print enough money to lift the country out of the mess it's in, hope that after 12 months the market has discounted all the bad news even though everyone knows how inefficient the market really is, and perhaps the most misplaced hope of all, that the local market can enjoy a Chinese New Year rally, this last hope being based on the ludicrous notion that investors have a right to expect such a rally every year just because it's occurred occasionally in the past.

For the year to date, the STI is now down 31 points, having only last week closed at 1,924 on Jan 5.

The week kicked off with Citi describing the recovery in property stocks as a 'bear trap' and recommending investors to exit as quickly as possible because the recent economic numbers were worse than expected. As a result, Citi said it expects a 2.8 per cent contraction in 2009, making it the worst recession in Singapore's history.

'Equity markets are expected to go lower before closing higher by end-2009 in anticipation of a 2010 recovery. . . Chua Hak Bin, our Singapore strategist, thinks the STI will head towards 1,500,' said Citi. It also thinks mid-to- high end residential prices could fall another 35 per cent.

This was followed by Goldman Sachs' Tuesday report on local property which said the mass market segment could see a further 26 per cent fall by end-2010 while the prime segment could drop 31 per cent over the same period. Goldman Sachs said it sees little room for net asset values to expand over the next 12 months.

Over the week, CapitaLand lost 17 cents or 5.8 per cent at $2.74 while City Developments dropped 41 cents or 6.6 per cent to $5.79. Both, however, managed modest gains yesterday.

Credit Suisse in a Jan 14 report also forecast a 2.8 per cent GDP contraction for Singapore in 2009 because of slowing consumption, in part because of a forecast 200,000 fall in the population by 2010 and job losses.

Regionally, it has an 'underweight' on Singapore, its biggest underweight being the banks. It has, however, an 'overweight' on telecoms and transport.

In Hong Kong, both Morgan Stanley and Goldman Sachs issued 'sell' calls on HSBC Holdings, with Goldman saying it expects HSBC to lose US$1.5 billion in 2009 and Morgan Stanley saying HSBC may need US$20-30 billion in capital and might have to halve its dividend.