It'll be a long, bumpy ride
S'pore stocks unlikely to see pickup anytime soon


By Zhen Ming


YESTERDAY the Straits Times Index (STI) dipped for a third disappointing time this week, for a total drop of 4.47 per cent since the start of the week.

Almost 11 per cent has been slashed from the STI's value since the start of the year - with nearly 40 per cent of the losses occurring over the past four days.

So, is the STI in serious danger of slipping even further for the rest of 2009? My answer in just a while, but first, a quick look-back at what happened (and why).

Relatively speaking, the STI's volatile performance this week is not surprising as it actually mirrors those of most other major stock market indices across the globe.

Faced with dismal trade figures and other grim signs of the economic meltdown everywhere, investors worldwide sold down stocks this week (especially on Tuesday), dragging the broad market indices down near their lows reached last November.

Prolonged recession

The Dow Jones Industrial Average closed down 297.81 points at 7,552.60 on Tuesday - barely above its post-meltdown low of 7,552.29 on 20 Nov 2008.

Dragging the Dow and other stock market indices down is a near-universal consensus that this recession is indeed going to be much longer and deeper than originally expected.

Last week, investment firm Credit Suisse lowered the projected operating earnings for S&P 500 companies in 2008 to only US$58 ($89) a share. (It originally expected US$70.)

Credit Suisse now expects overall operating earnings for the S&P 500 to drop yet again - by another 34 per cent - in 2009.

In lowering its estimate, Credit Suisse analysts added this grim note of caution: 'We worry that while financial earnings have already seen considerable weakness, non-financial earnings have further to fall.'

Investor sentiment was also shaken by news that Japan's economy shrank at an annualised rate of 12.7 per cent in the last quarter.

The worse-than-expected GDP numbers were a sobering reminder of the toll the worst downturn in decades is having on Asia's export-driven economies (including Singapore's).

Increasingly, investors across the globe are unconvinced world governments are acting fast enough. They were particularly disappointed after finance chiefs from the Group of Seven developed countries ended their meeting in Rome with pledges to work together - but (again) stopped short of concrete steps.

Ironically, the market actually sank the sharpest on Tuesday, when US President Barack Obama signed the US$787 billion stimulus into law and said there could be yet another stimulus package if needed.

On Wednesday, the US Federal Reserve cut its economic outlook for 2009 and warned that the US economy would face an 'unusually gradual and prolonged' period of recovery.

Expect therefore the-still-won't-go-away worries about ailing banks, struggling carmakers, tumbling home prices and cash-strapped consumers to push US (and global) stocks down to levels not seen since the late 1990s.

With the stock market usually regarded as a forward-looking mechanism, such sharp pull-backs can only mean investors are still questioning whether the STI and other indices will breach their lows of last November, when investor fears ran high.

Rebound?

The fundamental question here is whether global growth can realistically rebound when the US and Japan (the world's two largest economies) are just entering a period of dismal growth.

So here's my answer (and prediction) on the fate of the STI in 2009:

Expect the effect of the current global slowdown to impact Singapore significantly for at least the next couple of years.

Expect the STI, in turn, to remain basically bed-ridden for the rest of this year.

Source: The New Paper, Fri 20 Feb 2009