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Liquidity, better than expected Q2 earnings fuel market rally
By TEH SHI NING
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(Singapore)
THE liquidity-fuelled stock rally in July sent Singapore's stockmarket capitalisation surging to its highest end-of-month value in a year.
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Total market value of the 789 listed companies rose 13.3 per cent from June 30's $545 billion to hit $617.7 billion yesterday, the highest in 12 months after July 2008's $657.5 billion.
Continued improvement in global economic indicators, and more recent positive earnings surprises, helped drive July's market cap 57 per cent up from last December's $393 billion. The increase was a sharper 68 per cent when compared with this year's low of $367 billion in February.
'Obviously, the rally is still very strong, as the economic fundamentals have not seen as sharp a recovery yet,' said Carmen Lee, head of investment research at OCBC. 'Liquidity remains good in the market, as seen from the recent sharp pick-up in residential property demand and prices, and the momentum in the market is healthily buoyed by better-than-expected Q2 earnings.'
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As rising residential property prices and demand backed a recovery story for the sector, property stocks such as CapitaLand, Hong Kong Land and City Developments saw market value rise in July, even though gains for some were tempered by a minister's comments on possible speculation earlier this week.
For CapitaLand, its rise in market cap for the month narrowed to 3 per cent at the close of trading yesterday, after its share price dropped on news of its $1.1 billion convertible bond issue. But analysts such as DMG & Partners Securities' Brandon Lee reckon that after a short-term pullback, 'prospective site acquisitions and its burgeoning China driver should catalyse the stock upwards' again.
As for banking stocks, CIMB-GK's Kenneth Ng said in a recent report that 'after a relentless rally, it is timely to consider locking in gains' on the sector. DBS, UOB and OCBC all saw double-digit percentage gains in July's market cap, ahead of what are expected to be decent Q2 earnings results next week. Though analysts caution that charges for bad loans could hurt profits, some say that fee income could be positive with the stockmarket rebound.
Oil-and-gas-related stocks gained, with Keppel Corp's market cap rising 21.6 per cent to break into the top 10 by market cap. Commodities stocks such as Wilmar, Noble Group, Olam and Golden Agri-Resources also posted double-digit percentage gains.
Amid such gains, SIA Engineering Co stood out as the only one of the 50 largest companies to post a 6 per cent decline in market value. Hurt by the aviation slowdown, SIAEC posted a 23.2 per cent fall in its first- quarter net profit this week. Singapore Airlines (SIA) ended July with a higher market value, despite Thursday's announcement of its first quarterly loss in six years.
As the second-quarter earnings season continues to provide markets with support in coming weeks, there are reasons for investors not to be 'overly exuberant', a July 29 OCBC market views report said. Earnings expectations were low to begin with due to financial markets' free fall earlier this year, and the quality of earnings is questionable as revenue growth remains subdued, the report said.
In another note this week, Lim & Tan Securities said: 'The bottom line is, while the rally has more upside, what with all the inflow of hot money into Asia, the risks are starting to emerge. We should be worried of October.'