Over half of STI stocks dive to 52-week lows - bloodbath could continue

Singapore

THE Straits Times Index (STI) on Monday registered its biggest single-day loss since October 2008 on the back of diving oil prices and escalating fears of the Covid-19 outbreak.

It lost 178.61 points or 6 per cent to 2,782.37, as Asian equity benchmarks fell by between 3 and 7 per cent. Sell-offs continued when Wall Street opened - the Dow Jones was down over 2,000 points in morning trade - with the S&P 500 temporarily halted after falling 7 per cent minutes after opening.

In Singapore, all 30 of the STI's components were in the red, with 18 of them closing at 52-week lows. This included index heavyweights Keppel Corp, Singtel, Singapore Airlines and the three local banks.

KGI Securities head of Singapore research Joel Ng noted: "The market went through a round of indiscriminate selling due to fund flows as investors calibrate their assessment of global economic growth."

He added that sell-offs were further exacerbated by margin calls due to "the significant market movements caused by the oil price crash".

But while recent price weakness might suggest an opportunity to hunt for bargains, analysts are cautioning against catching a falling knife.

KGI's Mr Ng believes there could be more downside for equities as "financial markets are only realising the larger-than-expected impact of Covid-19 to the world economy."

Mr Ng is expecting fund redemptions to speed up which in turn, could trigger further selling pressure.

Most analysts are also expected to cut earnings forecasts for Singapore-listed companies, which could extend the pressure on their shares.

Adrian Loh, head of research at UOB Kay Hian acknowledged that stocks are "very inexpensive relative to their historical and market valuations". But he added that with near-term volatility, investors might prefer to wait out for better opportunities or enter into smaller positions.

Given that markets are still digesting the longer-term impact from the Covid-19 outbreak and Monday's sharp decline in oil prices, OCBC Investment Research's head Carmen Lee shares a similar view.

She said: "We will watch oil price movements in the coming days as well as whether the Covid-19 infection rate has peaked in other countries to assess the turning point for the market."

But once clarity emerges, Ms Lee noted that investors will resume the chase for yield in a low-interest-rate environment "and this will favour companies offering good yields, including real estate investment trusts (Reits)" like Ascendas Reit and CapitaLand Mall Trust.

On top of property trusts, OCBC's Ms Lee likes domestic-focused companies such as Netlink NBN Trust, Singtel and ST Engineering in the current climate.

Among STI counters, KGI's Mr Ng said the local banks were trading at 0.9-1 times price-to-book after shares fell by 7-8 per cent on Monday. This, he added, are "reasonable valuations given their long-term growth prospects once the Covid-19 outbreak is over".

He added: "It is during these times of market dislocation that creates opportunities for retail investors to buy quality shares with good fundamentals and attractive dividends of more than 5.0 per cent."

He sees other opportunities in Yangzijiang Shipbuilding and CapitaLand.

UOB's Mr Loh favours commercial and industrial Reits, telcos as well as blue-chips with resilient earnings and cash flow, including the banks.

Meanwhile, an analyst from the local brokerage pointed out that he has recommended clients to focus on companies like Keppel Corp, which previously announced takeover offers but "whose share prices have now fallen way below their respective takeover offer prices".