Heightened risks could see STI dip further
Share investors will not need any reminding that this has been a torrid few weeks with crashing prices, nerve-racking volatility and the sort of uncertainty that bears shades of the dark days of 2009.
There is plenty of blame to go around: Fears that the war in Syria will escalate, worries over how and when the United States Federal Reserve will trim its massive money-printing measure and concerns about weakening regional economies.
The result has been a rocky ride for bourses from Seoul to Sydney, with Singapore not spared the turbulence.
The benchmark Straits Times Index (STI) tumbled 6 per cent in last month - its worst monthly performance since May last year.
That horror show included 10 straight sessions of slump - the local market's longest losing run in over a decade.
Yet, amid the carnage, there is talk that the slide represents a choice buying opportunity for battered blue chips, with some analysts calling it possibly one of the last good entry points in what is still seen as a bull market.
The Sunday Times examines the key issues facing the market, and considers whether now is an ideal time for investors to jump into local stocks.
1. Local stocks attractive
The experts see value emerging in Singapore equities in the wake of last month's selldown, but also note that stocks have not hit bargain prices.
CMC Markets analyst Desmond Chua said the market's price-to-earnings ratio of around 12.5 is low compared with an average of 17 for major indexes.
Price-to-earnings ratio is a commonly used indicator of stock value - the higher the ratio, the higher the shares are valued.
"This means that the local market is attractively valued at current levels and could attract buying interest," he said.
CIMB research head Kenneth Ng added: "Valuations look reasonable, but not outright cheap. If there is any further selldown this month, then yes, it would be at attractive buying levels."
He noted that "absolute bargain levels" are in the 2,700 to 2,800 range.
OCBC Investment Research head Carmen Lee said the volatility likely this month could throw out more opportunities for "smart investors to use price weaknesses to buy into quality stocks".
2. Packed calendar
Analysts warn that this month could see large market gyrations as the weeks ahead have any number of potentially risk-raising events, political and economic.
Investors' eyes will be firmly focused on one key event - the US Fed meeting from Sept 17 to 18, when it will decide whether to start cutting back on its monetary stimulus.
American policymakers also have to grapple with the US debt ceiling, which will need to be discussed before the month ends.
Market attention has also been cast on the Syrian conflict, with a US-led attack possible. More conflict there could send oil prices rocketing and threaten the global economic rebound.
There is also the German federal elections on Sept 22, whose results could affect the speed of Europe's debt crisis recovery and the future of the euro.
Analysts are hopeful that these issues, as important as they are, will not translate in long-term volatility.
"All are likely to be resolved in a way that does not derail the global economic recovery, so any dips should be seen as buying opportunities," said Mr Shane Oliver, AMP Capital Investors' head of investment strategy and chief economist.
The Fed's massive market-boosting fund injection looks likely to be gradually removed starting this month.
The key question is not whether tapering, as the cutback is called, will take place, but by how much, say analysts.
They believe the US central bank will begin by reducing its monthly bond-buying from US$85 billion (S$108 billion) to around US$65 billion to US$75 billion.
AMP's Mr Oliver said: "It will probably commence a modest tapering but it's not a done deal."
The experts say the trimming has already been largely factored in by market participants but OCBC's Ms Lee warns: "It could still potentially create a very short-term knee-jerk reaction."
Asian markets may be affected by further funds flowing out of the region back to the US, as in last month, and Singapore will not be spared.
4. Rocky ride before rally
Analysts tip more upside amid a turbulent ride for the STI in the coming months.
"The STI might have to weather further volatility for the rest of the year," said IG Markets strategist Kelly Teoh.
The heightened risks could see the STI dip to as low as 2,900 in the coming weeks.
DBS Vickers Research vice-president Yeo Kee Yan said the index should find support at 2,900, as that level offers "good value" for bargain hunting.
The experts are hopeful that the local market should rally following the season of increased uncertainty in the coming weeks.
Mr Yeo said: "It should recover past the September-October period of uncertainty, (with) upside capped below 3,400 by the year end."
CIMB's Mr Ng has a year-end STI target of 3,400, if governments across the globe are able to hold their respective economies together.
He says: "It's not difficult for the STI to get to 3,400 as valuations at 3,400 levels are not stretched either."
But he adds: "The only caveat to that is that we think the environment is increasingly fragile and markets are prone to short, sharp selldowns."
5. What to buy
Market experts say stocks with strong revenue exposure to US and Europe will attract investor interest due to the growing optimism about their improving economies.
DBS' Mr Yeo says: "Technology stocks are early recovery plays - CSE and Venture have significant exposure to US/Europe and offer attractive yields of 4.7 per cent and 6.7 per cent respectively."
He also recommends stocks with earnings visibility supported by yield, which are likely to remain in favour.
"Our picks are SingPost, ComfortDelGro, ST Engineering and Hutchison Port," Mr Yeo added.
He also advises investors to avoid shares with exposure to emerging markets, as these are likely to underperform.
OCBC's Ms Lee favours the oil and gas and banking sectors, tipping Keppel Corp, Sembcorp Marine, Ezion and DBS as stocks to buy.
As for CIMB's Mr Ng, he is bullish on the capital goods, consumer and property sectors. CIMB's top picks include CapitaLand, DBS, Ezion, First Resources, Keppel Corp, M1 and Thai Beverage.
Get a copy of The Straits Times or go to straitstimes.com for more stories.