HK slide, soft Europe opening hit STI

After the volatility of last week, the Straits Times Index kicked off this week with a quiet session on Monday, drifting within a narrow band before a slide in Hong Kong and a soft opening for Europe in the late afternoon took it to a nett loss of 13.34 at 3,418.02.

Volume also dropped off from last week's average of about S$1.2 billion. On Monday, 1.08 billion units worth S$1.04 were traded; excluding warrants, there were 157 rises versus 268 falls.

Possibly affecting sentiment was an uncertain session in Hong Kong, where the Hang Seng Index opened with a triple-digit point loss, and then regained all of this before once again weakening to end a nett 0.64 per cent lower for the day.

The largest index loser was Keppel Corp, which dropped S$0.25 or 2.8 per cent to S$8.68 on volume of 11.4 million, a loss which cut 4.2 points off.

Maybank Kim Eng in a Monday report said it is maintaining an "underweight'' on the offshore marine sector. It referred to news that Brazil's national bank BNDES is postponing a US$3.2 billion loan to oil and gas firm Sete Brazil because of a bribery scandal, but said Keppel Corp and SembCorp Marine (SMM) are unlikely to be involved.

"Our key concern is if Sete Brasil would have sufficient funds to complete the rig projects. In the worst case of project cancellations, order books for Keppel and SMM may have to be written down,'' said the broker.

"The vessels would also have lower resale values, as each was priced close to US$800 million, vs market prices of US$500 million to US$600 million due to their local-content requirements.

"Current rig-market weakness does not help. Maintain 'sell' on SMM (target price S$2.65) and 'hold' on Keppel Corp (target S$8.60)."

The day's most-active counter was Hutchison Port Trust (HPHT), which collapsed US$0.035 or 4.9 per cent to US$0.685 on volume of 93 million, slicing a further 3 points off the STI.

Citi Research on Monday issued a "sell" on the counter, with a report titled "Shoot first and ask questions later".

"Following the 12 to 20 per cent year-on-year cut in the FY15 dividend (as management is now guiding for HK$0.33 to HK$0.36 from HK$0.41 in FY14 and our prior assumption for FY15), we downgrade HPHT to 'sell' from 'buy'," said Citi.

"We reduce our target price to US$0.66 from US$0.75 cents previously, implying a -2 per cent expected total return (including the approximate 7 per cent yield assuming the high-end of the lowered dividend guidance range)...'' said Citi.

"Within the transportation space, we continue to prefer the regional Airline and Airport names and believe that a number of other attractive yield-plays can be found in the Singapore market, without the cyclicality within the export sector."

OCBC Investment Research in the meantime, said it is maintaining a "hold" on the stock, with a target of US$0.68.

Asset manager MFS Global, in its February outlook, notes that the current environment of extraordinarily accommodative monetary policies and record-low bond yields reflects unsynchronised sub-par global growth.

"A veritable blizzard of stimulus has been required just to deliver the modest growth we've experienced so far," said MFS.

"In other words, monetary policy isn't making the situation significantly better - just preventing it from getting much worse."

As for US monetary policy, Schroders in its latest Quickview said the recent strong US jobs report makes it clear that the US economy is beginning to generate some inflationary pressure of its own.

"Markets have subsequently increased the probability on a June rate rise to 25 per cent, up from just 13 per cent last week. We still see this as too low and would put the probability at closer to 60 per cent," said Schroders.