Published December 15, 2008

Stockmarket analysts look past the pain

Rough ride ahead but bank on bottom-fishing opportunities in 2nd half-year, they say

By LYNETTE KHOO
Email this article
Print article
Feedback

(SINGAPORE) For stockmarket investors gazing into the new year, any decisive rebounds and opportunities for bottom-fishing are likely to come in the second half of the year, analysts say.

For H1, analysts recommend high-yield defensive stocks in the telecoms, land transport and media industries.

Till then, investors will be in for a tough ride marked by more downsides and volatility as corporate earnings and the economy are tested.

'It's a foregone conclusion that the outlook for next year will be worse than this year if you look at all the economic indicators and the related corporate fundamentals that go along with it,' says Kelive director of retail research Ong Seng Yeow.

Last week, Asian stocks got a lift from the largest US infrastructure investment plan since the 1950s unveiled by President-elect Barack Obama, before the failure of the rescue deal for the Big Three carmakers put markets into reverse. The Straits Times Index ended the week at 1,740.34 points, but still only half way from the level it reached for 2007.

Analysts believe there could be a near-term rebound from the typical New Year's effect and the expansionary Budget to be announced in January. But any reprieve will be short-lived as the economy, jobs market and corporate earnings may not recover till 2010.



Markets are still pricing in a re-run of the 1997 Asian financial crisis, or worse, some analysts say. CIMB-GK research head Kenneth Ng expects a bottom of 1,200 points to be reached in the third quarter at best, which is 0.7 times price to book (P/B) - the trough of the Asian financial crisis.

'There is potential for Singapore GDP to be the worst ever. In this climate, I don't think the market will rally convincingly,' Mr Ng says. With recovery in the external economy expected to come in 2010 at the earliest, we are likely to see very weak corporate earnings in the first half of next year, he adds.

Most analysts think that poor fourth-quarter earnings due to be announced early next year will show only the initial recessionary impact and there could be more earnings downgrades.

Corporate margins will be eroded as producers in sectors saddled with overcapacity cut prices to get sales moving, Mr Ng says. He is projecting a 16 per cent slump in earnings per share (EPS) of the STI component companies for 2009 from an estimated 8 per cent decline for 2008, which is one of the more dismal EPS outlook for 2009 among analysts.

Mr Ong of Kelive thinks that with the slowdown in corporate earnings to be reflected in the next six to nine months, the STI could retest the lows of 2008 around the 1,500-point level. 'We are looking at the 1,300 points as a level to enter,' he says.

Most analysts expect a rebound in stocks in the second half of 2009, which could take the benchmark STI higher by end-2009.

CIMB-GK is calling a bottom-up target of 2,040 points while UBS Investment Research pegs its end-2009 STI fair value at 2,100 points. UOB KayHian, which expects the market to trough in the first quarter given its undemanding valuation of 0.99 times P/B, eyes a bottom-up STI target of 2,150 points.

Average equity returns have a good chance of turning positive by end-2009, Mr Ng of CIMB-GK says.

So how should investors position themselves for 2009?

For the first half, analysts recommend high-yield defensive stocks in the telecoms, land transport and media industries. They favour blue chips over small caps, and cash-generating businesses given the tight credit condition.

Mr Ong of Kelive says that index proxies will probably be on investors' radar. He thinks a portion of investors' portfolios should be in defensive stocks 'which are critical in preserving value and collecting some dividends as the market turns south'.

Some analysts have also started looking beyond earnings to consider the balance sheet strength of companies in their search for 'deep-value' stocks.

According to a recent Deutsche Bank report, conglomerates such as Keppel Corp and land transport companies ComfortDelGro and SMRT have low refinancing risk given their net cash position and low gearing.

In a strategy report, Merrill Lynch recommends stocks that will emerge winners in the next cycle. It says that investors with a long-term horizon of over one year should consider stocks such as UOB, City Developments and Sembcorp Marine.

It all boils down to individual corporate fundamentals, says ST Asset Management president and CEO Goh Mui Hong. 'If the company can survive without gearing, I think those would be the companies that will last.'

But she prefers bonds over equities for next year, since bondholders get priority over shareholders in a credit event.

Towards the end of 2009, cyclical stocks such as financials and commodities could be rebound bets, Mr Ng says. Sectors not plagued by overcapacity would recover first, he adds.

For investors with a long-term view, DMG & Partners Securities co-head of research Terence Wong believes that 2009 is still 'a great time to look for stocks that could see their share price multiply in the years to come'.

Published December 13, 2008

SPC warns of weak 2008 earnings

Email this article
Print article
Feedback

SINGAPORE Petroleum Company (SPC) warned yesterday that its 2008 earnings have been severely weakened by the steep falls in crude and product prices.

The regional oil and gas company, which said this in a performance guidance for 2008, added: 'The drastic slowdown in refined products demand in the second half of 2008 has caused a sharp drop in refining margins which has impacted the group's performance.' SPC plans to release its full year 2008 results on Jan 20.

The dent on SPC's earnings was already seen in its recent third-quarter results which showed net profit plunging to $619,000 from the previous corresponding period's $98.12 million as the company suffered from volatile oil prices.

The sudden global economic downturn that started kicking in during the quarter saw demand plummet. SPC had to take a $125.3 million write-down on its books for the third quarter as it was forced to mark down its inventory.

SPC shares closed five cents higher at $2.23 yesterday.

Published December 13, 2008

Detroit shock ripples through world markets

Dollar's overnight slump may further hit Japanese exporters such as Toyota and Sony

Email this article
Print article
Feedback

(London)

WORLD stock markets plunged yesterday as the US Senate's rejection of a US$14 billion deal to rescue Detroit's carmakers and further grim economic data stoked concerns that the recession in the world's largest economy will be longer and deeper than expected.

The FTSE 100 of leading British shares was down 169.74 points, or 3.9 per cent, at 4,218.95, while Germany's DAX fell 230.35 points, or 4.8 per cent, to 4,536.85. The CAC-40 in France fell 181.02 points, or 5.5 per cent, to 3,125.11.

Earlier, Asian markets tumbled, with Japan's Nikkei 225 stock average down 484.68 points, or 5.6 per cent, to 8,235.87. Hong Kong's Hang Seng index slid 5.5 per cent to 14,758.39.

US stock index futures pointed to a big sell-off later on Wall Street. The Dow Jones Industrial Average was projected to drop 278 points, or 3.2 per cent, to 8,292, while the broader Standard & Poor's 500 index was forecast to fall 33.80 points, or 3.9 per cent, to 840.70.



Investors were rattled after the bailout for Detroit's struggling Big Three carmakers failed in the Senate. The collapse came after bipartisan talks on the car rescue broke down over Republican demands that the United Auto Workers union agree to steep wage cuts by 2009 to bring their pay into line with US plants of Japanese carmakers.

The bankruptcy of any of the big US carmakers would deal another blow to the world's largest economy, which is sliding deeper and deeper into recession.

It's not just stock markets suffering in the wake of the failure of the Senate to pass the car rescue deal. The dollar slumped overnight too, particularly against the yen.

That heaps more bad news on major Japanese exporters such as Toyota and Sony - already reeling from waning global consumer demand - whose overseas income is eroded by an appreciating yen. -- AP