THE short-covering bounce seen on Tuesday proved short-lived, as selling and shorting resumed yesterday to send the Straits Times Index (STI) 45.55 points or 1.6 per cent down to 2,831.15.
That pressure has once again emerged was not unexpected given the magnitude of the contagion worries facing Europe, worries that appear to be growing in intensity following Greece's elections about 10 days ago.
Leading the index lower were the banks and commodity stocks Olam International, Wilmar and Noble. Olam on Tuesday reported a 23 per cent drop in third-quarter earnings, news that, coupled with a regional retreat, sent its shares crashing 21.5 cents or almost 11 per cent to $1.785 with 85.8 million shares traded yesterday.
Both Wilmar and Noble last week reported disappointing earnings that have put pressure on their shares since; in yesterday's session, Wilmar lost eight cents to $3.97 while Noble fell 4.5 cents to $1.09.
Activity in the penny stock segment continued to dwindle. This was apparent from the volume numbers - excluding foreign currency issues there were 1.9 billion units worth $1.43 billion done, for an average of 75 cents per unit, the highest this month. Less than a fortnight ago when penny stock fever looked to be running out of control, the average unit value was 16 cents.
Not surprisingly given the large drop in Hong Kong, the most actively traded counter was a Macquarie-issued call warrant on the Hang Seng Index that expires on June 28 and has an exercise price of 20,200. The instrument ended 2.6 cents weaker at 4.8 cents with 156 million units traded. Calls rise in a rising market and can be expected to weaken in a falling market.
Not far behind was a Macquarie-issued put warrant that expires on May 30 and carries an exercise price of 19,200. It ended 3.2 cents firmer at 8.2 cents on volume of 79.6 million units. Put warrants rise in a falling market.
Overnight news from Europe was not encouraging. Greece's political parties failed to form a government and the country will most probably head for fresh elections, the outcome of which is likely to be the same as the first elections which were concluded a fortnight ago, namely, that anti-austerity parties would be voted into power.
Also bringing the sellers out was news that ratings agency Moody's has downgraded 24 Italian banks and this was followed by the latest GDP news which showed that throughout Europe, only Germany has any growth.
Worries that Italy and Spain will be next to need bailouts meant investors bailed out of these countries' bonds - Italian 10-year yields rose 16 basis points to 6.03 per cent, the highest since Feb 2, while Spanish yields jumped 12 bps to 6.37 per cent. There was also spillover pressure on Irish bonds, with the Irish equivalent surging 32 bps to 7.36 per cent.
Meanwhile, Olam's slide provided the main feature in an otherwise predictably weak session. DBS Vickers responded to Olam's disappointing earnings with a "hold" recommendation and a target price revision from $2.75 to $2 because of expected weakness in Olam's cotton business, while Maybank Kim Eng called a "sell".
"With poor earnings visibility, Olam is comparatively expensive at 1.4 times P/B (price/book) and 1.7 times NTA (net tangible assets)," said the broker. It now has a target price of $1.70.