By TEH HOOI LING
SENIOR CORRESPONDENT
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THE earnings season drove home the stark economic reality, and investors are being forced to adjust their expectations down further. Hence the relative calm of the markets so far this year has been disrupted as stock prices globally began their next leg down. Last week, the blue chip Straits Times Index (STI) slumped 110.7 points or 6.49 per cent. On Wall Street, the Dow Jones Industrial Index closed on Friday at 7,365.67, down 6.2 per cent for the week.
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On Thursday, it fell below the previous bear-market low, reached on Nov 20, to hit its lowest level in six years. On Friday, it plunged further as investors worried that banks would be nationalised. The market recovered some of its losses after the Obama administration said it preferred to keep major US financial firms in private hands.
If there's any consolation, all but one of our portfolios fell less than the STI and the Dow. The median decline was 4.6 per cent, with the lowest price-to-book portfolio suffering the least loss of 3.9 per cent. The biggest loser was the one-year top losers portfolio which slumped by 8 per cent. All the portfolios are now below the dummy capital of $150,000 as at Oct 17, 2008. The median loss is 15 per cent, and the average loss is 16.2 per cent.
Singapore shares are likely to continue sliding this week, and may test historic lows in the future, Dow Jones News Wires quoted analysts as saying. 'On the corporate front the earnings outlook into 2009 remains bleak, so it's hard to believe our markets have bottomed. Brace to see new lows in the STI this quarter,' said Kevin Scully, chairman of equity research house NetResearch Asia. A dealer at a local brokerage shared similar sentiments, saying, 'In the longer term, I expect the STI to test the lows reached last October, as the overall macroeconomic outlook is getting worse.'
Firms reporting earnings next week include property developer City Developments on Thursday, and United Overseas Bank on Friday. Analysts on Wall Street shared the same sentiment. According to The Washington Post, many market analysts and technicians armed with reams of historical data say that even though the Dow has given back all its gains - and more - from the five-year bull market that ended in 2007, it is unlikely the market has hit bottom.
Mark Arbeter, chief technical strategist at Standard & Poor's Equity Research, said the current market environment is showing few of the signs that have characterised previous lows: high price volatility, high volumes of trading, and even higher levels of fear. 'Bear market bottoms tend to be violent affairs,' he said. 'You sell hard, you rally hard, you go down hard and then you're off to the races. And that's not what we're seeing right now. Until this week, the market was really drifting sideways.'
And for all the jitters out there, Mr Arbeter added, the options market, where investors trade contracts that bet on the future direction of the stock market, is not showing the fear that signals that true capitulation has arrived. Many market participants think capitulation - when investors take their losses and get out of the market altogether - must precede a major market recovery.
Meanwhile in Singapore, the average volume was 752 million shares worth $737 million, compared with 844 million shares worth $864 million the week before.
As for our portfolios, the purpose is to provide real- time tracking of the various trading strategies - namely, buying the stocks which are the most recommended by analysts, those which have seen the highest upgrades by analysts, the one-year top losers, the highest dividend yielding stocks, stocks with the lowest forward price-earnings ratio and those with the lowest price-to-book ratio.
The process is mechanical and no qualitative judgement is exercised. So stocks that appear in the portfolios are not necessarily good buys.
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