POLITICAL bickering in Europe between France, Germany and Greece, a possible exit by Greece from the eurozone, and the contagion collapse this could trigger, continued to be the focal points yesterday as movements in the Straits Times Index (STI) were dictated by swings in Hong Kong, where trading funds most probably covered their short positions first before immediately resuming their selling.
As a result, the STI exhibited a near-perfect correlation with the Hang Seng Index, at least until 4pm when the Hong Kong market closed. This meant that an initial bounce of 10 points for the STI eventually gave way to a net 0.89 of a point loss at 2,779.53 for the day.
Not surprisingly, given the weak macro outlook that has hit the earnings of a large number of local blue chips, turnover excluding foreign currency issues was a thin 1.5 billion units worth $926 billion. The unit average was 62 cents, in line with the averages of the past week.
Within the STI, commodity plays Wilmar, Golden Agri, Olam and Noble have received a fair amount of attention in recent sessions, and this was again the case yesterday.
Noble was the most active index stock with a one-cent drop to $1.06 on volume of 53 million, while Olam, which managed a modest bounce this week after heavy selling last week, came under pressure again on speculation that China cotton customers were a high default risk.
According to broking sources though, the majority of Olam's defaulting customers come from India and Bangladesh and not China. Olam's shares ended four cents down at $1.685 with 39.5 million traded.
Elsewhere within the STI, shares of the Singapore Exchange (SGX) finished three cents higher at $6.24. According to Macquarie Warrants (MW), Macquarie Equities Research (MER) this week said the year-to-date average daily turnover of $1.4 billion is 16 per cent higher than MER's previous FY2012 expectations. The latest trading statistics for April and better-than-expected Q3 2012 results were said to reaffirm MER's positive view on SGX for various reasons, among them that turnover velocity improved by 10 percentage points quarter-on-quarter to 57 per cent and indications that management is able to maintain strong cost discipline amid tepid volumes.
"MER reiterates 'outperform' rating on SGX given the stock's defensiveness and balance sheet strength, which it thinks make SGX attractive despite the likelihood for weak market sentiment in the short term. SGX has outperformed its peers YTD but still trades at a 5 per cent discount to Asian peers at 25 times FY12e PER and offers a 4 per cent dividend yield," said MW. The target price is $7.56, up from $7.21.
In its Liquid Insight yesterday, Bank of America-Merrill Lynch (BoA-ML) said its energy analysts have projected oil prices under various scenarios relating to the Greek crisis.
"Under a scenario where Greece remains in the euro but tensions rise between the troika and the Greek government, with the hovering threat of a disorderly bankruptcy, the Brent crude price could decline to US$100 per barrel," said BoA-ML. "Under a disorderly Greek exit, but after an effective firewall is implemented that keeps other peripheral countries in the euro, the oil price could sink to US$80 per barrel. Finally, a disorderly eurozone break-up could send oil prices to US$60 per barrel."