By JAMIE LEE
AGAINST the backdrop of continuing uncertainty in the market, two brokerages are seeing more play on defensive stocks.
This comes as the Straits Times Index (STI) could fall as low as 2,530 points - a drop of about 14 per cent - over the coming 3-6 months, according to a report by DMG & Partners Securities.
'Not too late to sell,' said the DMG report dated Sept 2. 'Given the current uncertainty in the market, we believe the STI could test the 2,530 level, or 1.3 times price-to- book (P/B) over the next 3-6 months, even if no shocks surface.'
The index is expected to be dragged down by faltering US fundamentals, according to DMG.
'We believe the weak US economy will lead the STI to fall in the months ahead,' it said, adding that its own study finds the STI trends closely with US economic growth.
'The global outlook looks less promising, with recent US data pointing to weakness in housing sales and a still-high unemployment rate,' DMG said.
Good earnings reported in recent weeks are unlikely to nudge the Singapore market higher, as this has been factored into analysts' estimates.
Most sectors reported earnings in line with expectations, though banks such as DBS and OCBC underperformed, due to a hefty goodwill impairment and weaker core earnings respectively.
DMG has advised investors to avoid City Developments, since it will be more affected by recent anti-speculation measures to cool residential property prices, and Sembcorp Marine for its below-par order replenishment. It has also advised investors to stay away from the Singapore Exchange (SGX), given fears of lower equities market average daily turnover.
'We recommend investors to take a defensive stance,' said DMG. Its top picks include ComfortDelgro, M1 and SembCorp Industries.
Nomura, similarly, saw more demand for dividend plays among investors it surveyed during a recent roadshow.
'Investors are generally neutral or overweight on Singapore. Hong Kong investors are happy to own Singapore, given that it has been a market to hide in amid poor performance in North Asian markets,' said Nomura, which met 30 investors from Hong Kong and Singapore recently.
'They were positioned defensively, mainly in dividend plays,' it added in a report last week.
While banks in Singapore will see strong loans growth on the back of a strong economy, they are feeling the pinch from a decline in margins and continued low interest rates, said investors surveyed.
Nomura added that investors looking at the offshore sector are 'losing patience' in waiting for news of contracts from Brazil's Petrobras to be released.
'Most of the investors do not seem to be aggressively positioned in commodities considering their high-beta nature and underperformance year-to-date,' Nomura said.
It also noted that Asean fund managers were disappointed with Singapore's performance relative to other Asean markets.
