STI falls below support level of 3,000 points

[SINGAPORE] Singapore's benchmark Straits Times Index (STI) fell below the psychological support level of 3,000 points yesterday, a place it has not been for more than a year. It closed at 2,990.95 points, down 36 points or 1.2 per cent.

While analysts say it is difficult to predict how much more the market will fall, they see value as the fundamentals of a recovering global economy and stable Singapore dollar have not changed.

In a note to clients as markets opened, DBS Group Research noted that the STI was trading below the 3,050-point level that marked an attractive level of about 13 times forward earnings.

"Any downside below this level in the near term is likely temporary and we expect it to hold around the 3,000 level," DBS said.

"Amid the latest currency turmoil that befalls some emerging markets, Singapore continues to be a safe haven given its strong current account surplus position, stable Singapore dollar and low political risk."

Technical analyst Rieve Ko, a remisier at UOB Kay Hian, said indicators do not point to the STI being oversold yet, and the index might fall further in tandem with US markets. February is statistically a bad month for US markets and fund managers might continue to sell in the near term, he added.

"The next support level is 2,980. If the STI is not able to hold on to that, I expect it will go down to 2,920 to 2,950," Mr Ko said. But at levels closer to 2,900 points, he would start picking up beaten down blue chips, he said.

"I remain bullish for the medium term of six months. Interest rates are still going to stay low for the foreseeable future and global economies are recovering."

Voyage Research deputy head of research Ng Kian Teck said the 3,000-point mark is a key support level and if markets trade below that, he sees the next support level at 2,960 points.

DMG & Partners head of research Terence Wong said: "I do think markets should rebound at some point this year. The Singapore dollar will be a lot more stable compared to our neighbours' currencies. In the end, fundamentals should prevail."

The 3,000-point support level had held last August, when emerging market currencies like the Indonesian rupiah and the Indian rupee came under attack. The last time the index traded below 3,000 points was for two weeks in November 2012, when the market was gripped by fears of slowing US growth due to a combination of expiring tax breaks and spending cuts dubbed the "fiscal cliff". European growth was also slowing. That month, commodities trader Olam International, an STI component, came under attack by short-seller Muddy Waters. The market did not trade below 2,930 points then.

Go back further, and the STI last traded in the 2,800-point range and the upper 2,700s in May and June 2012, when investors dumped European bonds. They worried that pending Greek elections might mean an anti-bailout party taking power and the eurozone, in the midst of a debt crisis, would see its first exit.

But the market would go on to recover. A pro-bailout party was voted into power, and European Central Bank chief Mario Draghi then calmed bond markets with his famous utterance that he would do "whatever it takes" to keep the eurozone together. The STI would rise 20 per cent in 2012, closing at 3,167 points.

In 2013, the STI went on to a high of around 3,450 points in May. Fears from the US withdrawing its monetary stimulus and emerging market capital outflows into developed world markets then sent it back down. It closed the year back at 3,167 points.

This year, the global economy is expected to do better than 2013. Citibank projected global gross domestic product (GDP) growth to accelerate to 3.1 per cent this year, from 2.4 per cent last year, driven by a strong recovery in the US and Europe, and continued growth in emerging markets and China.

Analysts have targeted the STI to end 2014 at between 3,000 and 3,500 points. DMG, the most bullish, had a 3,480-point target. Top picks are banks, construction sector stocks, S-chips, commodities, transport and real estate developers.