After a tumultuous week, STI is flat for the year

IT's not been a good week for equities as economic growth worries all over the world led to a 56-point or 1.7-per cent loss for the Straits Times Index (STI) at 3,167.73. In Friday's session, short-covering in anticipation that Wall Street would rise on Friday led to a 13.52-point rise for the STI, its final reading at almost exactly the level at which it started the year.

A slowing US, a weak eurozone - made all the weaker by a stagnant Germany - and a stalling China are the main ingredients in the bearish mix which has sent markets into a tailspin over the past couple of weeks. As of Thursday's close, for example, the Dow Jones Industrial Average had lost almost 1,200 points from an all-time high reached about a month ago.

All this would not be news to regular observers who, by now, would have grown accustomed to the likelihood of prices here being mainly weak instead of strong each day. Daily volume, however, has picked up slightly - instead of the sub-S$1 billion totals that had become common, two out of the five trading days this week recorded volume above S$1 billion, the highest coming on Thursday when S$1.3 billion was done. In Friday's trading, 1.2 billion units worth S$1.1 billion were done.

Keppel Corp has been at the forefront of the index's decline, the stock coming under pressure because of the steep fall in oil prices this past month. It fell eight cents on Friday, bringing its loss for the week to 60 cents or 6 per cent.

In its Oct 16 Offshore and Marine report titled "Catching a falling knife?", Credit Suisse (CS) said stocks in the Singapore offshore and marine sector have a strong historical correlation with oil prices.

"Since 2004, Sembcorp Marine's share price has a correlation with oil prices with a factor of 0.82, while Keppel's share price has a correlation with oil prices with a factor of 0.46," said CS. It added that the Credit Suisse Global Energy Team has lowered its 2015 Brent forecast to US$91.50 and Q1 2015 forecast to US$87, the lowest quarter average since 2010.

"Overall, we expect a deeper near-term trough and project a modestly lower path of recovery in 2015 as North American production growth overwhelms weak consumption," said CS.

The banks have kept the index in respectable territory for most of the year, but the sector suffered a deep sell-off on Thursday. Although all three rebounded on Friday, they still recorded losses for the week - DBS declined 33 cents or 1.8 per cent to S$17.90, UOB 34 cents or 1.5 per cent to S$21.85, and OCBC 19 cents or 2 per cent to S$9.55.

Schroders in its Oct 16 Quickview said the plunge in stocks is providing a buying opportunity. "If we look at the economic fundamentals in Europe, the main concern that low levels of inflation may turn into deflation is not new and in our view there is little evidence to suggest that the chances of deflation have increased," it said.

"Whilst consensus GDP forecasts have been reduced moderately, leading indicators remain positive and inflation expectations have barely moved. European Central Bank (ECB) President Draghi has announced a number of measures to try to ease credit conditions in the eurozone but these have yet to be fully implemented, at least in part due to the 'asset quality review' (AQR) and stress tests being carried out on the banks," said Schroders. "The results of the AQR will be known very soon which should give the banks more confidence to lend and to get on with their day-to-day activities ... Furthermore, we believe that if the deflationary forces become too significant there is a high probability of full scale quantitative easing (QE) in Europe."