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By R SIVANITHY
SENIOR CORRESPONDENT

 

LAST week's column raised the very strong likelihood that the major equity indices had risen ahead of Tuesday's US interest rate meeting, but could well drop sharply after the meeting, regardless of the outcome.

 

This is exactly what happened, but we hasten to add that it wasn't rocket science by any stretch of the imagination that we got it spot-on, since the 'buy in anticipation, sell on news' approach to trading stocks has been around since time immemorial.

And it's precisely because of its simplicity and widespread appeal that we can reasonably expect the same buy-and-sell pattern to manifest itself again in the not-too-distant future, possibly starting as early as this week.

We're talking here of the traditional year-end 'window-dressing' that more often than not occurs in the final days of each year when the Straits Times Index enjoys odd, late pushes designed to enhance its appearance and make fund managers' performance look better than it really is.

The main targets are usually SingTel, the banks, Singapore Exchange and Keppel Corp, though we'd also keep an eye on the Jardine group since in some cases - mainly Jardine Matheson and Cycle & Carriage - volume is thin, thus making it that much easier to achieve window - dressing goals.

So given that everyone expects the index to be padded before year-end, it is possible that some early birds might look to position themselves ahead of the expected activity by buying first and selling later as time passes and the chances of window-dressing increase.

Beyond that, a look through the numerous 2008 outlook reports making their rounds now tells one thing is certain - brokers, analysts and researchers are not as cocksure about stocks continuing to rise as they were 12 months ago.

Some houses have tried to couch their views in non-alarmist language, presumably to cushion the blow for clients, while others have gone for the jugular and spoken more bluntly about the consequences of the US slipping into a recession.

Goldman Sachs and Morgan Stanley fall into the latter category. Goldman called its 2008 outlook for the region 'Asia, interrupted', while Morgan Stanley's Dec 10 US Economics was entitled 'Recession coming'.

Goldman said (under a section called 'Honey, I shrunk the returns') that 'despite our confidence in Asia's secular story, US and China macro risks, optimistic earnings expectations and highest starting valuations in five years imply a difficult start to 2008'.

It added that 'even with the recent market selldown, the 12-month forward PE ratio for the region is about 15, up from the mid-13 times range at this time last year... we believe risks to Asian EPS growth are on the downside - 8-10 per cent growth is more likely than the current 16 per cent expectation'.

Morgan Stanley's views on an impending US recession have been detailed in this column before. Suffice to say that the US investment bank believes that the bad news has not yet been fully reflected in Wall Street prices.

In a Dec 13 Asia-Pacific strategy report, it said 'during bull markets, highly geared companies tend to outperform. However, with current credit market turmoil, highly geared stocks may suffer funding constraints, limiting their growth potential and reversing their outperformance'.

Falling in the camp that prefers to use more encouraging language is Schroders, which said that 'while the structural case for investing in the region remains compelling for investors looking at the long-term, the spectacular run (in 2007) warrants some caution'.

It went on to say it expects a shift to more fundamental-based investing as opposed to momentum investing, which has benefited 'many of the over-valued China names including shipping, shipbuilding and commodity stocks'.

DBS Bank, in the meantime, while positive about Asia's growth in 2008 - which is positive for equities - also said it is cautious for the first quarter as markets begin re-pricing a slower US growth outlook.

'We forecast solid growth in Asia but uncertainty, hence risks are rising. The US slowdown may enter a fourth year and financial market stress in the US and Europe threatens our forecasts to the downside,' said DBS.

 

 

But wild card is whether the US goes into a recession and how Asia responds

 

By LYNETTE KHOO

 

(SINGAPORE) With lingering market uncertainties and repricing of risks, 2008 is probably going to be a less exciting year for the stock market, compared to the record-breaking run this year.