AFTER an initial short-covering bounce that added about 21 points to the Straits Times Index at 2,944, a weak opening for Europe yesterday brought selling pressure to bear and pulled the index down to 2,931.98 for a nett gain of just 7.03 points for the day. The broad market recorded 188 rises versus 193 falls, excluding warrants.
Turnover, however, remained at depressed levels, rendering any meaningful assessment of the market's health or direction difficult.
Excluding foreign currency issues, there were 2.3 billion units worth $1.03 billion traded.
The average was about 45 cents per unit, possibly the highest in more than a week, suggesting interest might be moving away from low-priced issues.
The recent election results in Greece and France were said to have unsettled European markets and sparked off fresh sovereign debt worries on the continent. This because the newly-elected parties were voted in on anti-austerity platforms which could jeopardise future bailouts.
In its daily report yesterday, financial advisers and research firm Ideaglobal said because the victorious party in Greece has failed so far to form a coalition government, the real risk for the country is another general election as the "Troika" of the ECB, International Monetary Fund and European Commission is unlikely to release funds in June unless an additional 11 billion euro (S$17.9 billion) multi-year budget cuts are agreed upon.
"In turn, this reignites Greek euro exit risks and the associated precedent-setting behaviour that investors dread," said Ideaglobal.
"Additionally, the assumption that (new French president) Hollande and (German Chancellor) Merkel will quickly reach a proper growth solution for the eurozone appears misplaced and (ECB governor) Draghi's growth compact is unlikely to be enough to drag the eurozone out of recession . . . Any bounces are likely to be temporary short-covering rallies and the major trend in May remains for sovereign credit spread widening and a slide in eurozone equity markets, as the major adverse themes sink in".
In a special report on the Greek elections, Bank of America-Merrill Lynch said the political uncertainty in the next few days in Greece will put downward pressure on the euro and this could intensify if the parties fail to form a coalition and another general election has to be called.
"We see Greece's survival in the eurozone depending on the adjustment programme and continued official funding. As long as political uncertainty continues, the presence of the eurozone in its current form could be at risk, in our view," said BoA-ML.
In its H2 2012 Strategy, Maybank Kim Eng said with the European debt crisis still lingering and possibly worsening, global markets are expected to remain volatile.
"Elevated inflation also does not justify holding on to cash for too long," said the broker.
"We would advise investors to be selective and stay invested - but only in the right stocks."
It added that earnings resilience and a solid dividend track record are two critical factors to scrutinise, and after stress-testing corporate operating histories for the past 10 years and taking into account share price volatility, it found nine stocks that passed its tests: CapitaMall Trust, Singapore Exchange, M1, StarHub, Venture Corporation, Singapore Press Holdings, ST Engineering, Keppel Corporation and Sembcorp Marine.
