STI drops 35 points in wake of US sell-off

ON the plus side, volume at Singapore Exchange on Wednesday amounted to 1.64 billion units worth S$1.3 billion, much better than the dismal S$597 million done at the start of the week. On the minus side, however, the volume spike signified increased selling, which ended with the Straits Times Index (STI) losing 35.04 points or just over one per cent at 3,424.94.

On the plus side, the STI was still in positive territory for the year so far. On the minus side, though, the gain for the year has now been shaved to 60 points or 1.8 per cent.

Wall Street's overnight plunge was said to be the reason for the heightened selling that saw the broad market, excluding warrants, chalk up 285 falls against 171 rises. That fall reportedly came after the release of a strong US durable goods report, which supposedly raised the likelihood of an earlier-than-expected interest rate hike.

Business done in the 30 STI components amounted to 262 million units worth a hefty S$830 million, which in dollar terms amounted to 64 per cent of total volume. Penny stocks were also active as traders churned the second and third line for value; however, there were only limited successes to report.

E-payments firm YuuZoo stood out with its shares managing a S$0.01 rise to S$0.34 on volume of 34.7 million, but gains in other low-priced issues were few and far between.

In the commodities sector, shares of Noble Group slumped S$0.02 to a 52-week low of S$0.80 on volume of 47.9 million, while casino operator Genting Singapore's shares finished S$0.005 lower at S$0.915 on volume of 27.9 million.

In the second line, shares of electronics firm Valuetronics ended S$0.01 lower at S$0.515 on volume of 1.5 million. The company on Tuesday reported a 0.9 per cent increase in net profit for the year ended March 31, 2015, to HK$149.2 million (S$26 million).

KGI Fraser Securities said the stock is still very attractive and maintained a "buy" with target price of S$0.67.

"Valuetronics is currently trading at only 7x FY16F P/E (3.8x ex-cash)," said the broker. "We roll forward our DCF-based valuation for the stock and use a higher cost of equity of 13.3 per cent due to an increase in beta to 0.905 from 0.715 previously."

DBS Vickers said in its May 25 Singapore Strategy report that a set of disappointing Q1 reports has pushed Singapore companies down the slippery path of earnings downgrades. "After shaving earnings by 3.6 per cent for FY15 and 2.9 per cent for FY16, earnings growth for the Singapore market slipped back to only 3.2 per cent for 2015. Key drag came from Oil and Gas, Commodities-related and Consumer Services sectors," it said.

"The benchmark STI, which trades just above 13.4x (-0.25 standard deviations) earnings, is inexpensive vs other MSCI indices. This, together with a relatively attractive dividend yield of 3.4 per cent makes it more resilient, despite lacking a strong growth catalyst.

"With the likelihood for a further delay to the start of the US rate hike cycle, inexpensive valuation and positive spill over from HK/China equity markets, our year-end objective is 3,700 . . . based on 13.7x 12-mth forward earnings."

On the outlook for US interest rates, Schroders noted that over the past three months, core consumer price index (CPI) inflation has accelerated to a 2.6 per cent annual rate, the highest for four years. "Headline CPI will trend back toward the core rate now that oil prices have stabilised, and clearly inflation of 2.6 per cent would be above the Federal Reserve's long-term goal of 2 per cent."

"This inflation release is unlikely to cause the Federal Reserve to raise rates next month. However, it does indicate that we are entering the phase of the cycle where the trade-off between growth and inflation deteriorates and requires action from the authorities," it said.

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