Markets Insights

Market conditions seen as 'better'

Chinese central bank governor Mr Zhou had signalled that more monetary easing will be on the way to boost China's stalling growth.
Chinese central bank governor Mr Zhou had signalled that more monetary easing will be on the way to boost China's stalling growth.PHOTO: BLOOMBERG

Recent good news may pave way for gains in near term: Analysts

Singapore shares went through a bumpy ride last week, with investors closely watching oil prices, global economic data and corporate earnings at home.

Some good news emerged to give the regional markets a lift and may pave the way for further gains in the near term, even if the outlook remains shrouded in uncertainty, said analysts.

After Asian markets closed on Friday, official data from the United States showed that the world's biggest economy expanded by a better-than-expected 1 per cent year on year in 2015's fourth quarter.

The Dow Jones Industrial Average slipped 0.34 per cent, but mostly on concerns over further interest-rate hikes as the US economic recovery stays on track.

Before that, Chinese central bank governor Zhou Xiaochuan signalled that more monetary easing will be on the way to boost China's stalling growth, sending the CSI 300 - which tracks the top blue chips in Shanghai and Shenzhen - up 1 per cent.

In Singapore, the Straits Times Index (STI) closed up 1.77 per cent on Friday amid a slew of positive signs, including a slim recovery in oil prices to above US$35 per barrel.

With the STI twice holding at the 2,600-point level in the past two weeks, the index may be able to gain further within a range of 2,570 to 2,700 points in the coming days, remisier Alvin Yong noted.

"The market conditions now are definitely better than, say, two months ago. However, we are still dependent on how the Dow performs, and whether there will be more easing announced by the European Central Bank at its next meeting on March 10," he added.

Market watchers learnt last week that commodity trader Noble Group was hit by its first annual loss since 1998 due to impairments made for weak coal prices, a move which divided analysts. It suffered a US$1.67 billion (S$2.3 billion) net loss last year, after it posted a US$1.2 billion exceptional non-cash loss to account for the impact of weak coal prices on asset values.

Critics pointed to the write-off as a sign that Noble might have been too aggressive with its valuation, but others saw it in a different light.

"We believe the impairment reduces uncertainties regarding its valuations of derivative assets on its balance sheet, given the more conservative coal price assumptions," Fitch Ratings said in a statement on Friday. "In addition, the results showed Noble continues to be able to generate cash flow from its operations and is committed to reducing working capital." Noble rose 5.9 per cent on Friday to 35.5 cents.

Another commodity firm will come under the spotlight, even as smaller oil and gas as well as marine firms report their earnings this week.

Commodity trader Olam, which had suffered what Noble is currently undergoing, will report its latest financials today.

Ezion and Swiber will also report their latest quarterly earnings and, if last week's results for marine firms are anything to go by, the outlook does not look good.

ST Engineering also saw weaker earnings in 2015 due to its struggling marine business. The market may also have been disappointed by the fact that ST Engineering lost out in its bid for the Land Transport Authority's next-generation Electronic Road Pricing project.

But the aerospace and defence conglomerate remains a cash-rich firm - with $944.1 million cash and cash equivalents - despite setting aside $497.6 million for dividend payouts, while its diversified portfolio will continue to ensure earnings consistency.

"We continue to have a positive view on the stock as steady earnings and dividends provide a safe haven in the current uncertain and volatile market environment," DBS analyst Suvro Sarkar said in a note, giving ST Engineering a buy call with a $3.60 target price. It last closed up four cents or 1.42 per cent at $2.85.

A version of this article appeared in the print edition of The Straits Times on February 29, 2016, with the headline 'Market conditions seen as 'better' MarketsInsights'. Print Edition | Subscribe