Tuesday, June 14, 2011

Investors braced for uncertainties

ANOTHER tough week looks likely for the stock market, as it grapples with a skittish Wall Street that is agonising over a possible double-dip recession in the United States. But the local corporate scene is unlikely to provide much cheer either,...
ANOTHER tough week looks likely for the stock market, as it grapples with a skittish Wall Street that is agonising over a possible double-dip recession in the United States.


But the local corporate scene is unlikely to provide much cheer either, as investors cast a nervous eye at the slew of measures launched by the Government to cool the residential property market.


The uncertainties led to the benchmark Straits Times Index falling below the 3,100 support level, as it ended 2.1 per cent lower last week at a two-month low of 3,078.35. Elsewhere on Wall Street, the Dow Jones Industrial Average ended the week below the 12,000 level for the first time since March, as it succumbed to six straight weeks of losses.


For now, it is difficult to predict where the market may be headed, based on the flow of funds in and out of the region.


Citi Investment Research's fund flow report showed that there was a 'negligible outflow of US$222 million (S$273 million) from emerging market funds last week', just one week after funds resumed flowing back into the region.


While Chinese funds continued to attract some inflow of fresh money, markets such as India have experienced outflow for the past six weeks.


'Disappointing US macro data, particularly the May non-farm payroll numbers and Bernanke's talk of deflating hope for quantitative easing three, all dampened investors' appetite for emerging market equities,' the report added.


As such, even the eye-popping US$700 million of shipbuilding contracts won by Yangzijiang for seven container ships failed to give much of a fillip to its share price, even though it bolstered the Chinese shipbuilder's reputation for building mid- to large-sized container ships.


Even more telling is the sour appetite for initial public offerings (IPOs). Business trust Perennial China Retail Trust plunged almost 13 per cent from its issue price of 70 cents on its first day of trading last Thursday, and showed a tepid recovery of 2.46 per cent the following day.


Dealers said that its dismal debut might make it difficult for other IPO hopefuls to launch their own flotations, since investors would be wary of getting whacked by another bruising sell-off on a new listing's first trading day.


But it is the sharp correction in property counters that is causing alarm among investors, given the importance that real estate plays in the economy and the stock market.


Analysts unleashed a wave of bearish reports on the property sector last week, after the Government announced it would release additional land supply that could potentially yield up to 14,200 residential units.


Said CIMB, which kept its underperform call on property giant City Developments: 'Most of the sites are located outside the prime districts - a move likely aimed at addressing mass affordability.'


Separately, UBS noted that there could be a moderation in HDB resale and mass-market private housing prices in the second half of the year, as the overall supply of housing units headed back to the high levels of the late 1990s.


And with the supply overhang building up in the residential sector, it advised investors to stick to commercial property players such as Keppel Land and Overseas Union Enterprise.



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