Investors urged to play it safe amid stock sell-off

A lightbulb production line in Sichuan province. Key Chinese data due out on Jan 19 could weigh heavily on the local market.
A light bulb production line in Sichuan province. Key Chinese data due out on Jan 19 could weigh heavily on the local market.PHOTO: EPA

Bargain-hunters keen to trawl for value buys may run into further volatility, analysts warn

Analysts warn that it is still early days to start bargain-hunting on the local bourse, even after the 4.6 per cent plunge last week.

Some feel the market is likely to stay volatile and could head lower.

After four consecutive days of sharp drops, the Straits Times Index (STI) recovered 0.8 per cent to reach 2,751.23 points last Friday.

"But this could be just a technical rebound - it could go down again on Monday," said remisier Desmond Leong. "Entering the market now would be more of a gamble than an investment."

His sentiments are echoed by senior dealer Lee Choong Kit at Phillip Futures, who advised investors to be cautious. "China's stock market performance will continue to weigh on the STI next week," he said.

Economic data on China's gross domestic product, industrial production and retail sales is due out on Jan 19. Disappointing numbers could cause another sell-off, said Mr Lee.

Further rises in United States interest rates this year could also pose a challenge, he said.

The slowdown in China has had a big impact on local stocks, especially tourism and property counters, said Mr Alex Wijaya, a trader with CMC Markets Singapore. Also, poor oil prices have seen some commodity stocks almost halved in price.

"But it is still not a value buy for now," Mr Wijaya said. "We need to see how the situation unfolds.

"If China manages to stabilise its economy, there might be a ray of hope for gaming and property. If not, there will be further downside and stocks will plunge further."

Heavy uncertainty has led to sharp market swings, he said.

"It's a battle of the forces in the market. We need to see clearer signs before we look for opportunities," he said.

Mr Leong noted that it is no longer about the valuations of individual companies but about the economies of both the US and China.

As long as they remain weak, it will be tough for the Singapore stock market to rebound, he said.

"It feels like (the downward spiral) has just started rather than ended," said Mr Leong.

Although oil and gas stocks have been badly "beaten and battered", he feels it is not time to buy yet.

A pick-up in crude oil prices would the signal to watch for, he said. "Oil prices have reached record lows recently. We can't tell when they will be done."

Those still keen to enter the market despite the uncertainties, he said, can consider economically resilient stocks like telcos and utilities.

Defensive plays such as real estate investment trusts might be an option too, though there are risks of further US rate hikes, he said. "There are too many factors at play - it's better to just wait and see."

A version of this article appeared in the print edition of The Straits Times on January 11, 2016, with the headline 'Investors urged to play it safe amid stock sell-off'. Print Edition | Subscribe