Wary Of Sub-Prime Ghost

Source : TODAY, Monday, August 27, 2007

Continued market volatility ahead, caution analysts

SINGAPORE shares are expected to trade cautiously this week on persistent concerns that the effects of a crisis in United States sub-prime credits are far from over, dealers said.

Shares regained their bearings following sharp falls last week, but analysts autioned volatility will remain with concerns over whether more sub-prime-related problems might surface, and whether global economic growth might be hurt.

At home, strong July factory output data may bolster sentiment, but news late on Friday that the Singapore Exchange would look into DBS Group Holdings’ $1.1-billion of extra exposure to collateralised debt obligations than it had previously reported could renew pressure on banking stocks.

The Straits Times Index soared 238.74 points, or 7.63 per cent, to finish at 3,369.45 on Friday.

Average daily volume totalled 2.19 billion shares valued at $2.54 billion last week, compared with 2.67 billion shares worth $2.79 billion the week before.

“The risk of a US recession is always there,” CIMB-GK Research regional economist Song Seng Wun said.

“We won’t be immune to the effects of an economic slowdown in the US but we (in Asia) are able to absorb it a bit better now.”

Standard and Poor’s said on Friday that Asian economies should weather any fallout from the current turmoil in global financial and stock markets sparked by the US subprime credit problems. Most regional economies appear to have learned their lessons from the Asian financial crisis in 1997 and 1998, it said.

Lehman Brothers said in its latest Global Weekly Economic Monitor issued over the weekend, that it cut its global growth outlook — a view it had kept since December. The US housing recession has turned out worse than it had expected, and is likely to stretch through to the third quarter of next year, the report stated. Meanwhile, the risks of a gloomier world economic outlook have risen as the sub-prime mortgage crisis continues to unfold.

For Asia, excluding Japan, economic growth is now forecast at 8.3 per cent this year, versus its earlier 8.4 per cent, Lehman said. “The main channel is weaker global demand for Asian exports, but the global capital market sell-off may also hurt the region’s real economies through financial linkages — net capital outflows, negative wealth effects and higher external borrowing costs,” the bank said Singapore’s manufacturing sector continued to do well. Last month, it expanded faster than forecast as pharmaceutical production grew at a robust pace and the electronics sector showed signs of a turnaround.

The positive news, however, was marred by DBS confirming that it has $2.4 billion worth of exposure to collateralised debt obligations, more than the $1.3-billion exposure it had initially disclosed on Aug 7. — AGENCIES