No rallies for now: STI seen to spiral down in 1H12

The continuing Eurozone crisis might just drive the STI lower than minus one standard deviation in the short term.

The STI currently trades at close to minus one standard deviation from its P/B mean.

In a statement, DMG Research said that the STI “could see some weakness in 1H12 as the Eurozone crisis remains unresolved. 

During the Lehman crisis, the STI fell to 0.88x P/B, which represents minus 2.5 standard deviation from its mean P/B. 

The analyst said that while the probability of the STI dipping to its Lehman-era level is low, investors should remain defensive and invest in liquid and quality stocks.

It noted that Investors’ cautiousness is already evident from the recent weakness in securities market average daily turnover (ADT). 

The analyst recommends investment in oil stocks as current crude oil prices (WTI at US$94/bbl) are seen to drive further investments by oil companies. 

It also remains bullish on the hospitality sector given the 14.4% YoY rise in visitor arrivals in 10M11. DMG Research expects more tourists to flock to Singapore on the back of attractions from the Integrated Resorts and cheap budget airlines flights.