ST Index up, following Wall Street's lead

MONDAY's column earlier this week said Wall Street would probably welcome last Friday's weak US jobs report because the market now takes a "bad economic news is good for stocks'' stance since it means interest rate hikes would be delayed.

This prediction turned out to be accurate, the US market rising sharply on Monday with news reports citing the weak payroll numbers as the main reason.

This in turn made for a firm Tuesday session for the Straits Times Index (STI) which added12.71 points at 3,465.62, although the real action once again lay in penny stocks.

Turnover amounted to an unimpressive dollar total of S$952.7 million, although the unit volume was an eye-catching two billion. The average value per unit traded was S$0.48, compared to around S$1 for most of the first quarter. Last week, this metric was S$0.60 for two of the four trading sessions.

Of the 20 most active stocks, 18 were priced below S$0.50 and 17 below S$0.20. The only STI components on the actives list were Golden Agri Resources and Noble Group. For most of the first quarter, three other index stocks featured regularly on the list - Genting Singapore, Singtel and Thai Beverage.

Volume done in STI components was 209 million units worth S$197 million, the dollar value proportion being 21 per cent, compared to about 50-60 per cent for most of 2014.

Some brokers attributed the sudden interest in the market's lowest-priced issues - or "micro-chips" as one dealer described them - to last week's general offer for IPC Corp by well-known local businessman Oei Hong Leong.

Also possibly a factor are stable oil prices, which may have prompted punters to pick out those from the offshore marine sector such as Mirach Energy, Charisma Energy, Swiber and Federal International that had fallen to rock-bottom levels.

Elsewhere, shares of healthy lifestyle retailer OSIM International, which have been weak recently, inched up S$0.005 to S$1.875 on volume of 3.3 million. OCBC Investment Research noted that the stock had fallen 10.3 per cent from S$2.08 in mid-March, prompting the firm to buy back 1.3 million of its shares at S$1.865 on Monday. However, the broker maintained its "hold'' on OSIM with a S$1.97 fair value.

On the "bad news is good news'' theme, Rabobank noted that it was the first time in a year that non-farm payrolls fell below 200,000. "One can't blame the weather or the negative impact of a sharp fall in oil prices on the energy sector for weak employment growth. The widespread slowdown in employment growth across sectors suggests that macroeconomic forces are at work, in particular weak global economic growth and the strong US dollar,'' said Rabobank.

"More importantly, these effects may not disappear overnight, so this could become a concern for the Fed ... It seems that for the market the bad news is once again good news as the Fed will not raise interest rates for much longer than anticipated."

Maybank Kim Eng in an April 6 report said more than 400 clients and 66 companies participated in its Invest Asean 2015 Conference. "We sensed clients' cautious optimism on the Singapore market amid lethargic growth and an absence of market catalysts," said the broker.

"The Singapore market appears fully priced at 13.5x 2015 EPS, close to one standard deviation above its 7-year average. This is against an EPS compound annual growth rate of 8 per cent for 2015-16. In the region, Singapore has weaker EPS and ROE growth prospects. Our STI target remains 3,440, on 14x 2015 EPS. This is one standard deviation above its mean since 2008."

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