Buying fails to reach broad market
Weak turnover and more activity in penny stocks - of the 10 most liquid stocks, seven were priced below 50 cents
MONDAY'S session for the local stock market was marked by wave of short covering in Straits Times Index (STI) stocks ahead of an expected rebound on Wall Street. However, even though the STI recorded a seemingly impressive 13.27 points rise to 3,376.04, the buying did not extend to the broader market - at 5pm, there were only 155 rises versus 284 falls in total.
Also worth bearing in mind was that the STI fell every day last week, dropping 55 points along the way and dipping into the red for the year to date. Monday's bounce meant it is now up 12 points for 2015.
Turnover was weak by recent standards at just over one billion units worth S$901 million, the average value per unit traded at S$0.90 pointing to proportionally more activity in penny stocks. This was borne out by the composition of the top actives list - of the 10 most liquid stocks, seven were priced below 50 cents.
Brokers described the session as "lifeless" and lacking in any redeeming features. A big factor is shaky Wall Street which has displayed weakness over the past week after the release of a better-than-expected Februrary jobs report raised worries that interest rates might be raised sooner rather than later.
Most of the STI's bounce could be traced to rises in DBS, UOB and SIA. In a March 12 report on Singapore banks, Nomura said the sector's recent underperformance is unwarranted. "The three-month inter-bank rate is 47 basis points higher than the average of last year, and the three-month swap rate is 76 bp higher. For DBS, for instance, we estimate this should lead to 7 per cent higher earnings in 2015F compared with 2014 as 80 per cent of DBS' Singapore dollar loans are pegged to these market rates," said Nomura.
"We see further upside potential as we expect the three-month inter-bank rate to rise to 1.4 per cent by year-end and to 2.4 per cent in 2016, from the current 0.9 per cent."
In the second line, one of the main talking points was an announcement by Norway-based shipyard Vard Holdings that it has had to terminate two contracts for a customer whose affiliates have filed for insolvency.
Although Vard said the termination would not have a material impact on the financial year ending Dec 31, analysts responded with mainly negative/cautious recommendations.
Maybank Kim Eng, for example, on Monday said the cancellations highlight the weakness afflicting the sector. "We conservatively cut FY15E-17E EPS by up to 6 per cent for the termination and delays. We also update NOK/SGD exchange rates," said the broker.
"Consequently, our Gordon Growth Model's target price (0.9x FY15E P/BV, ROE 8.5 per cent, cost of equity 9 per cent) drops from S$0.60 to S$0.58. Maintain 'hold' as its depressed valuations may make it an M&A/privatisation target."
Vard's shares on Monday lost S$0.01 at S$0.51 on volume of 2.3 million.
The US Federal Reserve meets on Tuesday and Wednesday to decide on the fate of interest rates. In its Daily Breakfast Spread, DBS Group Research said the Fed is expected to remove the word "patient" from its post-meeting statement.
During her post-FOMC press conference, Fed chair Janet Yellen will probably reaffirm that this does not put the Fed on pre-set course to deliver its first hike in June, said DBS. "Yet, close attention will be paid on how much she puts the improvement in the labour market over the (transitory) weaker oil-led inflation data, especially in the context of the strong USD gains."
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