Bravehearts Stage Market Rebound

Source : TODAY, Tuesday, August 14, 2007

But some stay cautious amid subprime uncertainty

Half empty or half full?

At a time when financial markets are weak at the knees from fears of a full-blown global credit crunch, investors are asking themselves if the recent selldown is a sign to stay away or a buying opportunity.

Yesterday, optimism won out — fuelled, no less, by a string of bullish analyst reports.

The stout-hearted waded into red-stained Asian bourses, which rebounded in the afternoon when counterparts in Europe — one of the areas outside the United States deemed most affected by delinquencies in the US high-risk mortgage sector — kicked off the week on a high note, encouraged by European officials' assurances that their cash injections last week helped improve liquidity.

Singapore share prices clawed back losses, finishing up 0.64 per cent or 21.4 points at 3,380.6. Leading gainers were the Singapore Exchange and United Overseas Bank (UOB).

These financial counters, said some pundits, presented bargains backed by solid fundamentals. In a research report issued yesterday, brokerage DBS Vickers said the impact of the current credit woes on Singapore banking stocks was "overblown".

This is because the three local banks — DBS, UOB and OCBC — have "minimal" exposure to sub-prime mortgages, which are home loans given to US borrowers with poor credit histories and subsequently packaged into complex investments purchased by financial institutions worldwide. Such investments make up less than 0.6 per cent of each of the trio's total assets as at the end of March, calculated DBS Vickers.

"We believe banks would continue to deliver strong results coupled with loan growth in view of the strong macro-economic backdrop," the brokerage arm of DBS Bank said. Credit Suisse took a similar stance when its analysts said the current "scare" had "created an excellent opportunity to buy" banking counters.

Property shares, which have lost about 10 to 15 per cent from May's peak, could deliver "a 10 to 12 per cent type returns" over the next 12 months, global asset management firm Henderson Global Investor's Singapore-based director of property (Asia) Chris Reilly told Channel NewsAsia.

The asset management firm also shrugged off concerns of a global liquidity crunch curtailing en bloc residential purchases in Singapore by private equity firms.

"Interest rates are not that high here. You can make the sums work as long as you can borrow money … Even if the credit market dries up in the short term, I don't think it will be the case for very long. The markets will settle down, and regain their confidence, and it'll even out again," Henderson's head of property equities Patrick Sumner told Today.

Such optimism is not shared by all quarters of the business world.

In the past two weeks, two companies have decided against tapping Singapore's capital markets.

China KL International, a maker of condensers for refrigerators and air-conditioners, withdrew its listing prospectus on Aug 3. Four days later, Bahrain's Arcapita Utility Trust, which would have been the first sharia-compliant trust here, also pulled the plug on fears of a poor reception by public investors.

In short, choppy markets spell lower prices for initial public offers. And even with so-called "cheap" buys, not all are willing to step forward.

Daiwa Institute of Research's David Lum feels it is "hard to tell" if now is a good time to scoop up shares.

"Market sentiment now is very weak," he said.

Agreeing, Schroders Investment Management's London-based chief economist Keith Wade said the current turmoil would not derail the global economy.

But "the difficulty is knowing how long the selloff will go on for – judging when to increase risk is like catching a falling knife. Given that funds will need to unwind positions as a result of the sell off, now does not seem to be the time to go back in," he wrote.