THE Straits Times Index (STI) yesterday dropped 11.41 points to 2,772.54 in moderate volume of 1.9 billion units worth $1.4 billion, excluding foreign - currency counters. The average unit value was the highest in several weeks at 74 cents, suggesting that interest in penny stocks and micro-caps sagged significantly, perhaps not surprising given that most of the activity had been generated by proprietary desks and day traders in the first place.
The index's loss brings it almost exactly back to where it started the week - 2,772.75. Having risen 28 on Monday and Tuesday, the STI's Wednesday and Thursday losses add up to 28 points.
Providing the backdrop was a negative Wednesday for Western markets, Wall Street included. In Europe, as investors await the outcome of Greece's June 17 elections, Spain has assumed the mantle of the country that markets are most worried about following reports that its banks require large bailouts, money that the government cannot afford as it is struggling to meet its own deficit targets.
As a result, the 10-year Spanish bond yield on Wednesday shot up 25 basis points to 6.67 per cent, the highest since Spain joined the euro. The Italian 10-year yield spiked to 5.93 per cent and Italy's debt to GDP ratio is twice as high as Spain's, at some 120 per cent.
A yield of 7 per cent is seen by many analysts as unsustainable for a country to continue financing itself over the long term. Meanwhile, the difference between the Spanish bond and the equivalent safe-haven German bunds was a record 5.36 percentage points.
Here, a 1.5-cent drop in Noble Group to $1.115, which came with 59 million shares traded, helped boost value traded by $65.7 million. In a May 25 "buy" on Noble, CIMB said it is convinced that Noble's earnings are recovering.
"We brought management on a non-deal roadshow in Singapore recently, during which the group provided updates on its businesses," said CIMB.
"Questions raised were largely related to its agriculture segment. To which management replied that: 1) sugar earnings will accelerate in 2Q-4Q as the harvesting season kicks in; 2) Noble's newly expanded sugar mills will contribute US$200 million more in yearly earnings at full capacity; and 3) soybean crushing margins remain subdued, although the company crushes for profit and not market share."
The broker said the market has overlooked Noble's earnings recovery and set a target price of $1.42.
Elsewhere, shares of heart stent maker Biosensors fell 5.5 cents to $1.225 on volume of 11.6 million. Maybank Kim Eng on Wednesday called a "buy" on the stock, saying it likes Biosensors for its longer-term vision of transforming into a medical devices platform company and that it is confident the company will be able to execute this successfully.
"While we adjust our sum-of-the- parts-based target price marginally downwards to $1.61 due to lowered licensing revenue forecasts, valuation remains attractive given the retreat in share price," said the broker.
In its June Monthly Market Review, OCBC's Wealth Management said that despite being cautious about the short term because of Europe's situation, it remains medium-term positive on equities.
"In particular, we continue to favour Asian and Emerging Market equities on still-attractive fundamentals, but recommend investors to stagger their purchases on market weaknesses, rather than to time the markets."