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SINGAPORE's stock market is trading at levels not seen in years, with small capitalisation and oil and gas stocks leading the plunge.
As the benchmark Straits Times Index (STI) flirted with the 3,000-point psychological support level on Thursday, analysts are sounding glum.
They say corporate results are weak, there are no catalysts in sight to move the market up, and worse is to come.
Herald van der Linde, HSBC's head of Asia-Pacific equity strategy, told The Business Times: "Sentiment is very cautious towards Asia. People want to wait for the Fed to raise interest rates and see how markets react to that."
Kevin Scully, executive chairman of independent research house NRA Capital, said it is hard to find value in Singapore yet. In the meantime, oil and gas counters are facing financing and solvency issues and global hedge funds are likely shorting local banks, he said.
"We are just at the start of a long overdue correction. If you look at further US dollar strength and more capital flows out of Asia, the Singapore market will continue to underperform ... The index is going to go to 2,700 points first and then we'll see," he said.
Liu Jinshu, deputy head of research at another independent house, Voyage Research, said that risk aversion remains high among retail investors.
"Other than stimulating economic growth, Singapore needs to have a well diversified pool of investors comprising passive to active, large to small," he said.
RHB Investment Bank's head of Singapore research, Ong Kian Lin, in an Aug 13 note, urged investors to stay in stocks that rely solely on domestic demand or which generate earnings in the US dollar.
Phillip Futures analyst Howie Lee wrote: "No reason to look at Asian equities in a bullish manner if the outlook for US and European equities is bearish. Good luck."
In an Aug 19 note, Citi downgraded its 2016 global economic growth forecasts to 3.1 per cent, from 3.3 per cent previously. It said risks to its 2016 forecast are to the downside due to China worries.
In another note, Citi said stocks that have outperformed the STI in previous periods of weakness include Singtel, CapitaLand Mall Trust, ST Engineering and SIA Engineering.
An oil and commodities glut, a burst China bubble, slowing regional economic growth, and a devaluation of China's yuan have caused animal spirits to drain out of emerging markets in the last few months.
At the same time, the US is poised to raise interest rates, possibly announcing the hike after the next Fed meeting on Sept 16-17.
In Singapore, oilfield services and upstream exploration and production stocks like Nam Cheong, RH Petrogas and Ezion Holdings are down 40 per cent in just one month.
Commodities players like GMG Global, Golden Agri-Resources and First Resources are down 20 per cent.
Out of around 670 stocks with price movements till Aug 18, only a fifth managed to avoid negative returns in the past month, according to Bloomberg data compiled by The Business Times. Half of all stocks declined more than 7.3 per cent.
The FTSE ST Small Cap Index, comprising stocks with around S$100 million to S$1 billion in market capitalisation, is at its lowest level since mid-2012.
The FTSE ST Catalist Index, meanwhile, is at 2009 lows. Catalist is the Singapore Exchange's (SGX) junior board, where more speculative counters are listed.
CIMB head of equity research for Singapore, Kenneth Ng, wrote in an Aug 18 note that analysts downgraded their earnings after the first quarter only to find worse results in the second.
"So much for Singapore being defensive," he said. He cut his year-end target for the STI to 3,170 points from 3,480 points previously, mainly due to falling corporate profits.
DBS Group Research was more gloomy, pointing out in an Aug 17 note that the STI could slide to 2,900 points, or about 11.5 times 12-month forward earnings.
This level was the inflexion point during the Eurozone sovereign debt crisis in 2011, the research house said.
In the STI, which contains Singapore's 30 largest and most liquid stocks, the only stock with a positive one-month return - of 1.7 per cent - was soft commodities trader Olam International. Fellow commodities trader Noble Group propped the bottom of the table with a 38 per cent decline.
Corporates are reacting by doing more share buybacks.
Palm oil processor Wilmar International, for example, has spent almost S$40 million to buy back 13 million shares from Aug 11 to Aug 19, the first buybacks since October 2014.
HSBC's Mr van der Linde, however, sees value in Singapore banks. Higher interest rates will mean more money made from loans, he said.
Elsewhere in the region, the Chinese property market is improving, and there is value in Macau gaming stocks and some selected Taiwanese tech companies, he said.
He said Asia looks more interesting on a five-year time horizon. Developed market profit margins could come down as wages rise, while emerging market margins could improve as companies consolidate and move up the value chain, he said.
"Asians are buying equities. When I started as an analyst in 1996, all investors were foreign investors, they bought and sold and traded among themselves," he said.
"But now, in a whole group of countries, there are pension, insurance reforms, and mandatory savings plans put in place."