S'pore market cap inches down to S$994b from all-time high

Singapore

THE market capitalisation of Singapore stocks inched down to S$994 billion in May from an all-time high of S$998 billion at the end of April.

Over the same period, the Straits Times Index (STI) dropped 95 points or 2.7 per cent to 3,392.11, dragged lower mainly by falls in the banks, Singtel, Singapore Airlines and Genting Singapore. Year to date, the STI is up only 27 points or 0.8 per cent.

The position of the top three stocks - Prudential plc, Singtel and Jardine Matheson - was unchanged. The value of the top 20 companies amounted to around $597 billion or 60 per cent of the whole market.

Although the market's value did not drop much, it was not a good month for stocks, with a meltdown in Hong Kong and China in the final week triggering spillover selling here. In the last week of May, the STI fell 58 points or 1.7 per cent.

Also a factor was a shaky Wall Street, where traders are certain interest rates will have to rise but are unsure when that will occur. Meanwhile in Europe, the still-present threat of Greece exiting the eurozone because of its financial problems played a part in dampening sentiment here.

The main domestic factor which weighed on prices were weak first-quarter earnings.

DBS Vickers in its May 25 Singapore Strategy said disappointing Q1 reports pushed Singapore companies down the "slippery path" of earnings downgrades.

"After shaving earnings by 3.6 per cent (FY15F) and 2.9 per cent (FY16F), 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.

A major factor behind the fall suffered by the banks was the 20 per cent drop in the three-month Sibor (Singapore interbank offered rate), from its April 9 high of 1.027 per cent to 0.83 per cent, and the bigger fall in the three-month SOR (swap offer rate). From a high of 1.132 per cent on March 24, it is now around 0.767 per cent, a 32 per cent fall.

Despite the market's soft showing in May, brokers remain optimistic. DBS Vickers said the STI, which trades just above 13.4 times earnings, is inexpensive compared to 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," said the broker.

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