STI ends 16.67 points lower but off day's low on short-covering and mixed Europe opening

THE local stock market suffered from a third consecutive Wall Street-triggered sell-off yesterday, this time resulting in 16.67 points being cut off the Straits Times Index at 2,632.31. This brings the index's three-day losing streak to 85 points or 3.1 per cent.

It did, however, finish off its low of 2,605 yesterday, thanks to short-covering and a mixed opening in the late afternoon for Europe, which suggested that players did decide late in the day to position themselves for a possible rebound in the US yesterday.

The broad market, excluding derivatives, recorded 145 rises against 233 falls and volume was a moderate 1.7 billion units worth $1.61 billion, excluding foreign currency issues.

Stocks have come under pressure since the start of the week largely due to Wall Street's instability and growing concern over the 'V-shaped' economic recovery, with Wednesday's plunge coming after poor September home sales were released which fuelled earlier fears that when government aid runs out, so will the recovery.

The New York Times quoted Joshua Shapiro, chief US economist for MFR, a financial advisory firm, as saying that the housing data showed that the recovery would be slow and that housing prices might fall again.

'It's still a very dicey environment,' he was quoted as saying. 'There's still a lot of looming supply out there, particularly in the upper and middle price range.'

In the banking sector here, OCBC's shares rose 12 cents to $7.65 on volume of just under eight million, UOB dropped 22 cents to $16.72 and DBS lost six cents at $12.92.

On Wednesday, OCBC surprised with a larger-than-expected rise in Q3 earnings. As a result, Kim Eng Research said that it has raised its FY2009 earnings estimate for OCBC by 11 per cent and sees the bank as a strong recovery play given its capital strength and market dominance in life insurance. The broker set a target price of $9 for the stock.

While Citi Investment Research issued a 'buy' on OCBC with a target price of $9 and Macquarie followed suit with an $8.44 target, Morgan Stanley called an 'underweight' because OCBC's figures showed a greater emphasis on trading rather than banking.

'At best, the stock is fair value,' said MS. 'However, given the earnings composition (weak underlying banking and heavy reliance on an investment market sweet spot) and in our view, recent overpayment for the ING Asian Private Banking assets, we rate the stock an 'Underweight'.'

MS did, however, revise its target OCBC price up from $7 to $7.20, adding that it does not see loan growth recovering to 2006/07 levels and that the core drivers of the Singapore economy are not heavy users of credit.

In its latest Economics report, DBS Group Research said that Asia's V-shaped recovery may the sharpest on record with GDP growth across the region set for a second quarter of double-digit gains. It said that such growth cannot realistically be expected to continue and expects to see a 'square-root shaped' recovery taking place.

'We expect monetary tightening to begin in Q1 2010 with India and Korea. We think China will start hiking rates in Q2 2010 and will allow the yuan to resume its appreciation against the dollar in Q2 2010 as well. This will set the stage for further Asian currency appreciation against the dollar in 2010,' said DBS. It also said that inflows into Asia are strong and will get stronger. 'This will complicate exit strategies for Asian central banks to no end. Expect a loud and strong debate over capital controls in 2010,' said DBS.