Another weak day for local stocks

IT'S difficult not to agree with trading representatives who claim that present market conditions are the worst in at least 20 years, not when turnover on Wednesday was a paltry 1.3 billion units worth S$734 million, the Straits Times Index (STI) dropped 25.48 points to 2,828.57, and a large institution like HSBC Global Research has announced earlier in the week it has stopped covering Keppel Corp, a bastion of the local market.

The average value per unit traded on Wednesday worked out to S$0.56, clearly pointing to where the market's trading energies were directed. Those who view the glass as being half-full might view the lopsided interest in penny stocks as presenting opportunities for investors to discover undervalued gems; those who see the glass as half-empty - and these would count among the vast majority - would say there is something fundamentally wrong if the market is led by poor quality issues.

As for Keppel, brokers pointed to a Tuesday flash note from HSBC that it is stopping coverage because of a re-allocation of resources. "Our final target price is S$5.21 and final rating is Hold," said HSBC. "Yet another indication of how poor the interest is in local stocks," said a dealer. On Wednesday, Keppel lost S$0.07 at S$5.27 on volume of 2.96 million.

One house that still covers Keppel is Macquarie Equities Research (MQ). Macquarie Warrants (MW) in its Wednesday newsletter said MQ has maintained a "neutral" rating on Keppel with a S$5.80 target based on a sum of parts methodology.

In the same sector is Sembcorp Marine (SMM), whose shares dropped S$0.04 to S$1.275 with 5.4 million traded, after it reported a S$21.8 million Q3 loss compared to a S$32.1 million profit last year. Turnover was 21.4 per cent lower at S$888 million.

RHB said with SMM reporting figures that were below expectations, the broker has reduced its FY16-17 forecast earnings by 10 and 13 per cent respectively.

"The worse could be over for Sembcorp Marine but we expect earnings to continue to be unexciting in a low crude oil price environment, hence we maintain our NEUTRAL call," said RHB, setting a S$1.33 target. OCBC Investment Research recommended a "sell" with S$1.13 fair value based on 0.9 times FY17 book value.

State Street Global on Thursday said its investor confidence index (ICI) for October rose 3.6 points to 99.1. Michael Metcalfe, senior managing director and head of Global Macro Strategy, State Street Global Markets, commented: "Investor confidence has now risen for two consecutive months and has recovered its losses following the Brexit vote. Moreover, the fact that investor confidence has risen even though the probability of a Fed interest rate hike has also edged higher in the past two months is encouraging."

The ICI measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher the risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets.

Natixis Global Asset Management's chief market strategist David Lafferty in his latest Capital Market Notes said between the US election, possible Fed tightening and the start of Brexit negotiations, he expects market volatility across asset classes to pick up in the fourth quarter into the first quarter of 2017.

"In this environment of heightened geopolitical risk, market movements are likely to overshadow economic fundamentals, which tend to evolve more slowly," said Mr Lafferty.

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