Wary investors shy away from trading as STI remains volatile

Equity market trading value has been lacklustre lately, with the October 17-21 ADT just at S$1.02b.

The turnover is sharply lower than the S$1.99b and S$1.37b for Aug and Sep 2011 respectively.

The drop has offset the STI’s 7% gain from its October 5 low of 2529 to 2712, further dimming the likelihood of the index regaining strength on the back of reduced buying interest. 

DMG Research, which has already adopted a defensive stance regarding the equities market starting August 2011, has once again expressed its concern that recent Singapore newsflow is not market-friendly. The move came after S&P downgraded the US credit rating.

The country’s recent economic indicators, which already took a beating from the economic crunch in the US, have not been too positive. Aug 2011 Singapore electronics industrial production index was down 21.9% YoY, and total manufacturing excluding biomedical was down 10.5% YoY (the 21.7% YoY surge in overall industrial production was driven by biomedical manufacturing).

Non-oil domestic exports for September, meanwhile, fell 4.5% YoY, lower than market expectations of +3.5%. 

While new residential property sales was strong, with September recording a robust 2064 units sold (+25.8% MoM), the Singapore government’s re-iteration of its stance to increase land sales has led to muted investments in property stocks. 

The research firm has revised its 12-month STI target to 3240 following its recent changes in STI component stocks’ target prices.

DMG Research said that although the current STI level gives a weighted FY12 P/E of 14.2x-- lower than the 20-year historical average of 19x—it remains unattractive due to the earnings downside risk as developments unfold especially in Europe.

|"Whilst we may witness periods of volatile share price movements (in both directions), we believe the STI trend is likely to be downwards over the next few months before recovering,” the research firm said.