SINGAPORE — After a tumultuous few weeks, all of its gains for the year were finally wiped off the benchmark Straits Times Index (STI) yesterday, but analysts said there might be a glimmer of light at the end of the tunnel.
The STI closed 0.53 per cent lower at 3,153.48 points yesterday amid weak global sentiment as investors digested their disappointment over the Bank of Japan’s (BOJ) decision to stand pat and uncertainty over the United States Federal Reserve’s intentions for its bond-buying programme.
The benchmark has lost 0.43 per cent this year from 2012’s close of 3,167.08. “There was an overnight sell down … It was quite a surprise that the BOJ did not do anything. All global markets opened lower this morning,” said Mr Desmond Chua, market analyst at CMC Markets.
Twenty-three of the 30 component stocks on the STI closed in the red yesterday, with warehousing and logistics giant GLP and commodities firm Noble Group leading the losses at 2.89 per cent and 2.48 per cent, respectively.
Shares in the Republic started to enter bearish territory after the benchmark hit a five-year high of 3,454.37 on May 22.
Sentiment has been hit by fears that the US Federal Reserve will scale back its quantitative easing (QE) programme, resulting in an increase in global interest rates.
Weak Chinese economic data and disappointment over Japan’s reform plans have also contributed to the downward spiral of not only the STI, but major regional indices such as Japan’s Nikkei-225, China’s Shanghai Composite and Hong Kong’s Hang Seng Index.
Analysts say the road ahead remains bumpy as worries over tapering of the QE continue to linger, but that there are signs the global economy will pick up in the second half of the year.
“We’ll probably see markets trading sideways (as) we have the two factors colliding, but eventually, that will give way to a rally,” said Phillip Securities head of research Joshua Tan.
“We think that global growth will experience some pick-up. If you look at PMI data for May, for example, there are signs of an improvement,” he added.
Mr Chua from CMC Markets noted that recent economic data shows intra-Asia trade improving and Asia may have reduced its reliance on the US and Europe, something that would provide support to the STI.
He also said investors may have priced in concerns over the QE scale back, and that markets will be driven more by fundamentals going forward.
“I think the sell-off is a little too drastic. The 3,150-level is still a key support and we’re right at this level right now. If we start seeing a rebound tomorrow, the floor would have been established and it goes to show that markets have come out of the QE talk and are more fundamentals focused now,” he said.
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STI has fell from the 3450 level to the current 3150 level, a significant 300 point decline. Over the past 6 months STI has given no returns to shareholders as the gains got wiped out by the fears of interest rate hikes.
Technically and psychologically speaking the next level of support would be at the 3000 level, at this level the STI will trade at around 12 times earnings, which is slightly lower than its historic average of 15 times earnings. At such level bargain hunters would start to appear and their buying may create a strong price support.
If the market continues to show weakness from the 3150 down to the 3000 I think it would be a great opportunity to utilize some cash that you have set aside. In my previous article in regards to the next big crash I was holding around 20% cash. I have not bought anything during the recent decline but would really like start using part of the cash. Maybe half at the 3000 level and the balance if the STI really gets bear and hits the 2700 level or lower.
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