Last week was painful for many investors especially if you were trying to trade the market or were leveraged as you may have had margin calls. The table below gives a snap shot of what happened to our STI Index and some component stocks. You will notice exceptional weakness in commodity related stocks such as Wilmar, Noble and Olam on specific cocerns such as alleged tax evasion to the imposition of taxes on excessive profits for commodity companies. If we survived 2008 and 2009, this weakness is not new so dont panic.
| |
14-May-10 |
21-May-10 |
change |
% change |
Impact on |
|
| |
|
|
|
|
STI Index |
|
| STI Index |
2855.21 |
2701.2 |
-154.01 |
-5.4% |
|
Contribution |
| |
|
|
|
|
|
to week's fall |
| Worse index movers |
S$ |
S$ |
S$ |
|
Points |
% |
| Wilmar |
6.42 |
5.54 |
-0.88 |
-13.7% |
-25 |
16.4% |
| Noble Group |
1.93 |
1.69 |
-0.24 |
-12.4% |
-6 |
3.9% |
| NOL |
2.14 |
1.89 |
-0.25 |
-11.7% |
-3 |
1.9% |
| SembCorp Marine |
4.20 |
3.79 |
-0.41 |
-9.8% |
-4 |
2.5% |
| Olam International |
2.51 |
2.30 |
-0.21 |
-8.4% |
-4 |
2.3% |
| OCBC |
8.85 |
8.35 |
-0.5 |
-5.6% |
-14 |
8.9% |
| DBS |
14.36 |
13.60 |
-0.76 |
-5.3% |
-15 |
9.5% |
| ST |
2.96 |
2.86 |
-0.1 |
-3.4% |
-9 |
5.8% |
| SGX |
7.74 |
7.50 |
-0.24 |
-3.1% |
-3 |
1.9% |
| UOB |
18.98 |
18.46 |
-0.52 |
-2.7% |
-7 |
4.4% |
| |
|
|
|
|
|
|
| |
|
|
|
|
|
57.6% |
It is interesting to note that UOB which our banking analyst feels is the best among the local banks in terms of lowest cost income ratio, best interest margin and highest CAR - was the best performing among the three local banks.
What can we expect going forward ?
Markets are likely to remain volatile as it would take about three to six months before investors feel comfortable that enough has been done to address the problems in the EU - we went through this in the US in Q4-2008 till Q1-2010. In my earlier Blog, I felt that the Euro would find support against the US$ at about the US$1.20 level - this would be good for the EU as it would help both their tourists and manufacturing sectors. The chart below on the US$/Euro shows that we bounced just above the US$1.20 level.
Most global stock market indices have breached support levels and their 100/200 day moving average - this points to further technical weakness in the Dow which has support at 10,000 and then 9000. Our own STI Index has support at 2700 and then 2500 and 2400. But any decline to these levels is likely to be on thinner volume given that many investors are sidelined and waiting for events in Europe to stabilise.
The VIX will continue to be a good indicator of sentiment......it recently rebounded above 45 last week and is now around the 40 levels. A drop below 30 would be a good signal for markets to resume their uptrend.
I am still positive on stocks and think that sentiment should improve into Q3-2010 !!
Putting aside the problems in Europe, the good news is that the economic numbers from the US and Asia remain strong, corporate earnings have been good and market valuations are not expensive. The PER of the Shanghai market which used to be between 30 to 60 is now in the mid teens. Our own STI Index and even the Dow are trading between 12-13 times PER - not expensiive.
Selected bargain hunting is my strategy. The stocks in my Stock Picks are on low valuations, deep discount to their NAVs and have strong balance sheets - these should help them weather the current storm well. Commodity stocks are likely to face some uncertainty in the new taxes on excessive profits which are being proposed and this may lead to earnings downgrades by analysts if implemented.
If you cant stomach the volatility given the high VIX, another strategy would be to stay sidelined and enjoy the World Cup - hopefully markets will stabilise by mid July and be poised for their next upward move.