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Global sell-off continues to dent investor confidence

As Singapore shares continue to slide amid a global sell-off, investors are not quite ready to buy the dips, according to analysts.


AS SINGAPORE shares continue to slide amid a global sell-off, investors are not quite ready to buy the dips, according to analysts.

This comes as market sentiments continue to be dented as the World Health Organization (WHO) declared Covid-19 as a global pandemic, and the United States halted travel from Europe for 30 days, pushing global stocks into bear territory.

The Straits Times Index (STI) reached a 52-week low at 2,666.05 on Thursday, a 21.9 per cent fall from the 52-week high of 3,415.18. It also finished at a four-year low with a 3.8 per cent decline to 2,678.64.

While the market has already been pricing in the impact of the virus outbreak, the current sell-down has yet to slow as investors are spooked by the "uncertainty revolving around various risk factors in the market", Yeap Jun Rong, investment specialist at Phillip Securities told The Business Times (BT).

The last time the STI saw a huge decline was against the backdrop of the global financial crisis. According to Bloomberg data, the index plunged 42 per cent between September and October in 2008. It also recorded one of its worst sessions in August 2011, slipping 13 per cent over a period of 10 days. In 2015, it fell some 15 per cent between July and August.

With the exception of a handful of healthcare-related stocks, no sector is immune to the market sell-off, according to Joel Ng, KGI Securities' head of research. "With a potential synchronised slowdown in two of the world's largest economies in 2Q20, we believe risk-assets may face more downward pressure in March," he said.

He also pointed out that financial markets were using the Sars period in 2003 as a guideline and expecting a V-shaped recovery, but that "has been completely thrown out the window as Covid-19 spreads to Europe and the US".

While many government authorities are rolling out Covid-19 relief packages to cushion the impact of the virus outbreak, monetary and fiscal policies may not be adequate to overcome a global healthcare crisis, said CGS-CIMB analyst Lim Siew Khee in a report.

"Therefore, the general market sentiment would likely remain depressed as the market assesses the threat of contagion risk," she said.

However, equities may be able to find some support from more attractive valuations during the downturn.

This is particularly so compared to bonds as government bond yields hit historic lows and interest rates gravitate to zero, said Hou Wey Fook, DBS' chief investment officer.

CGS-CIMB's Ms Lim noted in her report that on average, share prices need to fall another 18 per cent to reach target entry level.

"Some safer names that are close to buy levels are Singtel, Wilmar International and ST Engineering. The capital goods sector presents the deepest value, with names that could double the money in three to five years time," she said.

Having said that, Phillip Securities' Mr Yeap warned that "investors should avoid blindly jumping in purely because they are cheap".

"It is still difficult to quantify the actual economic impact resulting from Covid-19, and there are also other risks factors, such as the oil price war, prevalent in the market," he added.

Hence, analysts are pointing towards sectors that are less susceptible to the impact of the virus outbreak, such as real estate investment trusts and consumer staples. Tech manufacturers are also among stock picks for their strong returns over the years. These include firms like Micro-Mechanics, AEM Holdings, Venture Corporation, and UMS Holdings that have returned in excess of 50 per cent over the last three years.

READ MORE: Oil slumps as US bans travel from Europe