THE bottom fell out of the local stock market yesterday as a combination of fears took grip - worries over China's bank lending restrictions which apparently could choke off a recovery, and an unstable Wall Street which has been rocked by fears of radical banking reforms.

 

Besides the twin fears, there was added pressure from a slight firming of the US dollar, raising 'carry trade' concerns where positions taken because of a cheap US dollar have to be unwound if the US dollar strengthens.

 

With Hong Kong's Hang Seng Index plunging 2.4 per cent and China's main indices losing 2-3 per cent, the Straits Times Index crumbled by 71.38 points, or 2.5 per cent, at 2,740.33, the lowest since it closed at 2,732 on Nov 30. The index has now lost 201 points, or 6.8 per cent, since a recent peak of 2,933 on Jan 11.

 

Brokers pointed to China as the main source of worry, following recent threats by government officials to rein in bank lending. Also a factor was Wall Street where bank stocks have come under pressure on worries that proposed reforms could hit their profits.

 

Banks were the main index losers yesterday. SingTel's eight-cent slide to $3 contributing a loss of 7.3 points.

 

In an 'underperform' call on SingTel issued on Monday, CIMB said after reviewing results posted by SingTel's Indian associate Bharti, it was concerned about competition in India. CIMB said that Bharti's results, while in line with expectations, were marked by a 'tepid' topline and low margins due to intense price competition.

 

'While Bharti expects competition to stabilise in 2H10, we are less sanguine and believe the competitive phase will persist throughout the most part of 2010,' said CIMB. Its target for SingTel is $3.30 based on a sum-of-parts calculation.

 

In the property sector, most of the major counters ended sharply down, although Keppel Land's shares were relatively well-cushioned with only an eight-cent fall at $3.36. Kim Eng yesterday issued a 'buy' on the stock, saying that it believes KepLand's shares have suffered recently due mainly to mounting concerns of policy risks in China, but thinks that demand for the latter's projects there (predominantly townships) are underpinned by long-term fundamentals and growth. 'Maintain buy with a target price of $4.55, pegged at a premium of 10 per cent to its RNAV (revalued net asset value),' said Kim Eng.

 

OCBC Investment Research said that it believes recent property market tightening measures in China may have dented sentiment but feels that the impact on KepLand will be limited. Its target for the stock is $3.82 and it recommends that investors accumulate on weakness.

 

Meanwhile, in a Monday report, DBS-Vickers said the local property market is still 'looking up' according to the latest data and reiterated its preference for high-end residential developers.

 

In its chart view at the start of the week, DMG & Partners said that the STI is set to decline further.

 

'Given the bearish outlook, we thus advocate investors to regard any technical rebounds as opportunities to cash out rather than as considerations that the trend has turned bullish.'