More pain ahead for the Straits Times Index after painful August sell-down

Gains will be limited as uncertainties mount.

After local stocks tumbled in an extremely dreary August, DBS analysts warned that the benchmark Straits Times Index (STI) is unlikely to recover back to July’s level of 3300 points.

This is because the culprits behind last month’s steep decline—namely, the impending start of the US rate hike cycle, weak regional currencies, Asian growth slowdown and falling oil prices—continue to overshadow the market’s recovery prospects.

“The current technical rebound is brought about by oversold technicals and valuations falling to a relatively attractive level as a result of the recent sell-down. However, we do not see a V-shape recovery back to July’s level of 3300 anytime soon,” DBS said in a report.

Apart from these external headwinds, Singapore equities are also at risk from the rising spectre of technical recession, which has become more likely after poor July manufacturing figures.

DBS expects the STI to be traded within the 2750 to 3050 range. Any gains could be capped at the 3050 level, below DBS’ revised bottom-up 12 month STI target of 3200 points.

“The market remains fragile and susceptible to macro events unfolding over the next two months. We prefer to maintain a trading stance and be tactical in our buy and sell calls,” DBS said.