STI loses grip after re-piercing end-2015 level

AN afternoon reversal in Hong Kong and the Dow futures and a soft opening Europe-wide possibly because of weak oil prices put paid to hopes earlier on Wednesday that the Straits Times Index could end the session in the black for the year.

After rising to an intraday high of 2,893, the index closed a net 4.79 higher at 2,875.57, about seven points below its end-2015 level of 2,882. Turnover was relatively heavy at 886 million units worth S$1.2 billion and excluding warrants, there were 202 rises versus 203 falls.

Banks were in focus, particularly DBS after it released its Q2 figures last week and disclosed its exposure to failed oil and gas (O&G) company Swiber Holdings.

Maybank Kim Eng maintained its "sell" on DBS, saying the latter's second-quarter results suggested that provisions may not be adequate and that there is broad-based asset quality deterioration in various areas including the oil and gas (O&G) sector and in Hong Kong.

"We cut FY16-18E net profit by 4-9 per cent to reflect lower earnings and higher provisions,'' said the broker.

Phillip Securities said it takes the view that DBS's O&G exposure impacts profitability rather than the balance sheet. "The problems in the offshore oil and gas can be managed over time as the companies adjust themselves to lower demand for offshore oil field services,'' said Phillip, adding that a systemic impact on balance sheet would imply that the whole oil and gas industry had collapsed and there is no business within that industry, which is clearly not the case.

"To be sure, the overall oil and gas assets are still producing income which adds to the profitability of DBS. And as these earnings accrue over time, it helps to offset impairment charges,'' said the broker. It maintained an "accumulate'' on DBS with S$16.09 target. "We do not believe that the exposure to the oil and gas industry will end up in a 'too little, too late' situation for DBS,'' it said. The stock dropped S$0.06 to S$14.98 with 10.8 million shares traded.

After a bounce on Monday in most O&G stocks, renewed weakness set in - Ezra, Ezion, Charisma Energy and Vallianz all falling in active trading. Also notable was a 2.5-cent drop in the shares of Pacific Radiance which drew a late afternoon query from the Singapore Exchange. At the close of trading the O&G company had yet to reply.

Shares of rail operator SMRT ended S$0.005 higher at S$1.635 on volume of 6.4 million versus Temasek Holdings' takeover offer of S$1.68. In discussing SMRT's latest results which included a 23 per cent drop in first quarter net profit to S$15.5 million, UOB Kay Hian noted that even other major segments such as bus, taxi and rental business put up a poor showing.

"We have trimmed FY17-18 net profit by up to 8 per cent to reflect higher operating expenses on the back of heightened operational requirements and a more rigorous maintenance regime in the train sector,'' said UOB-KH. "We highly recommend investors to accept the offer price of S$1.68, which we believe provides a more palatable exit as fundamentals could deteriorate further.''

BlackRock's global chief investment strategist Richard Turnill in his Aug 9 Global Weekly Commentary said the upcoming US presidential election season is unusual, with unpopular candidates, vast policy differences and equity market volatility at historically low levels. "We see volatility moving higher as the Nov 8 election approaches,'' said Mr Turnill, adding that although Democratic candidate Hillary Clinton is leading in opinion polls, UK's unexpected "Brexit'' vote shows that such polls can be wrong.

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