STI drifts to 0.6% loss for week ahead of US elections

AHEAD of the US presidential elections on Nov 8, markets everywhere traded within narrow bands, which is entirely to be expected given the massive uncertainty that could ensue if Republican candidate Donald Trump wins.

As a result, the Straits Times Index drifted to a 12.68-point loss at 2,816.26 on Friday, dropping 16 points or 0.6 per cent over the week. Friday's market turnover of 929 million units worth S$878 million completed five consecutive days that dollar value fell below the S$1 billion threshold widely seen as the breakeven point for the broking industry. Friday's volume was the highest for the week, elevated by a large push on Singapore Post (SingPost).

Traders resorted to churning the second and third lines. In some cases the interest was wholly speculative; in others there were corporate developments on which to trade.

On Friday, for instance, shares of China steel manufacturer Delong Holdings jumped S$0.09 or 35 per cent to S$0.35 on volume of 94,000, after the company on Thursday announced that its Q3 results that are due to be released on Nov 8 are expected to show a significantly higher profit than last year. "The increase in net profit is mainly due to an increase in sales volume and average selling prices of products sold amid tighter supplies following production cuts in the PRC in 2015, and restocking by customers."

In other cases, there were queries from the Singapore Exchange (SGX) but these were invariably met with negative responses from the recipients. Exhibition firm Cityneon, for example, on Thursday was approached by SGX for possible explanations behind the interest in the former's shares and replied that it did not know of any.

On Friday, shares of SingPost jumped S$0.07 or 4.6 per cent to S$1.59 on turnover of 28.4 million, making it the third most active stock of the session. The company on Thursday announced it has obtained regulatory approval for China e-commerce firm Alibaba to raise its stake in SingPost from 10.2 per cent to 14.4 per cent.

UOB-Kay Hian maintained a "buy" on the stock with a sum-of-the-parts target of S$1.77, using a discounted cash flow model based on a 6.5 per cent weighted average cost of capital and a risk-free rate of 2.5 per cent.

"We believe current valuation remains attractive as the value of its core mail and property businesses account for 94 per cent of SingPost's current value per share (based on Thursday's closing price), which potentially suggests that logistics and e-commerce ventures are undervalued," said the broker.

Bank of America- Merrill Lynch in its Oct 28 Equity Strategy said in its two-week marketing trip to Europe and the US, it was struck by the fact that clients are generally pessimistic on China and are expecting the economy there to roll over anytime now, since in their view the recovery is not sustainable, driven by a property bubble, tax-incentive driven car sales and state-owned enterprises' capital expenditures. Two other findings were that investors were positioned for lower bond yields for longer - so inflation is not seen as a problem - and investors prefer emerging market bonds over emerging market equities.