Stock markets to see volatile trading in 2008: analysts

SINGAPORE : 2007 saw a lot of volatility in the stock markets, and that is expected to be sustained going into 2008 as uncertainty from the global liquidity crunch keeps investors on their feet.

Channel NewsAsia speaks to some market players for insight on how the savvy investor can stay afloat in rocky waters.

Despite volatility in the market this year because of the US sub-prime crisis, Singapore shares managed to show some resilience.

The STI put on double-digit gains for the whole year.

Analysts say the impact of the sub-prime crisis was largely one of sentiment.

Gabriel Yap, Senior Dealing Director, DMG & Partners, said: "To me it's actually very minimal other than the impact on sentiment. The real impact with respect to the banks, most of them have actually come out to say that it's minimal. If any it's through their participation of indirect stakes of CDOs. But the knock on impact is more because of sentiment."

Kenneth Ng, Deputy Head, Singapore Research, CIMB, said: "The Singapore market performance was much in line with global equity markets. We had a very strong first half but sub-prime, global issues that came out in the second half brought down equity performance...Overall I think we're doing about 18, 19 per cent year to date. It's decent but not one of the best performing markets."

Looking ahead, most brokerage houses appear to be positive, keeping their 2008 year-end targets for the STI at above 4,000.

Arjuna Mahendran, Chief Strategist, Asia Pacific, Credit Suisse, said: "I think in the first half, there might be fears of slowdown in Asian exports and the problem that could create for the broader Asian economies. But, I think the rebound really comes by mid-2008 and it will be much stronger than everybody will expect and that will then power our stockmarkets up to record levels. So, I stick with my 4,200 forecast for the STI."

Mr Ng said: "At the end of the year Singapore equities should beat the benchmark for global bonds as well as currencies. our year end target for STI is about 4,100." But they also say that the road will not be smooth sailing. Mr Ng said: "In the first half of 2008 I think what will happen is that there will still be writedowns from global banks. DBS may writedown another S$200 million. All this writedowns will weigh on sentiments especially on financials. Local banks don't have much more to writedown but you will get hit as well when global banks write down their portfolio further."

Their best advice for investors is to take a more defensive approach.

Lorraine Tan, Vice President, Standard and Poor's, said: "I think some defensive stance is warranted. We have become a little bit more cautious in that we have lowered the portion of equities a couple of months backs. We had a decent correction in November and at this point in time, we think that a mild recession is already factored into the equity markets."

Mr Yap said: "Next year will be a tough year. It'll separate good investors from great investors. First half will be difficult because of panning out of sub-prime crisis. I'm hoping that based on savings and loans crisis in 1989 which took 14 months to settle this time round could be faster. If that's the case then by the first half things should be better."

In terms of sectors, market-watchers are seeing promise in offshore and marine companies, alongside others like property, construction and telcos.

Mr Ng said: "There are various themes in 2008 that one can play on. Of course offshore and marine theme is still there. The favourite institutional play is Keppel and still will be Keppel but we are advocating a move to production proxies because as more rigs come on-stream there will be a lot of jobs to do in the production phase of the cycle. The worst hit sector in 2008 probably could be the tech sector where most of the manufacturing in Asia is made for consumers in US and Europe."

On the whole, analysts say Singapore and other regional markets will be where the growth is versus an anticipated slowdown in Europe and US. - CNA/ch