1) Technicals: STI 2637 was tested this week a level that we believe should cap the index’s rise in the short-term. The Hang Seng is also approaching resistance levels from 20570-21100 (HSI rose to a high of 20664 this week). We observed ‘hang-mans’ formed on the Dow’s daily chart over the past few days, which is a sign that the rally has run out of steam.
2) Valuations are now very near to historical average. According to Datastream, the Singapore market P/B is at 1.35x versus historical average of 1.39x. The MSCI Singapore is trading at 16.9x FY09 earnings, which already exceeds the historical average of 15.9x. This suggests that the stock market rally has priced in this year’s earnings from a historical average valuation. In addition, its 12-mth rolling forward PE is currently at 15.4x, which is also fast approaching the historical average of 15.9x.
3) Sentiment for property stocks, which led the market higher in the past 3 weeks, could be dampened following comments by Minister of National Development Mah Bow Tan that the Singapore government is monitoring closely speculative activities that are trickling into property market.
4) 2 major Chinese banks ICBC and CCB aim to set a ceiling on new loans, this according to a ST article. If put in place, the FY lending ceilings imply that the 2 banks have already issued about 80% of their total lending for the year, suggesting that loans for 2H will be much reduced.
Technically, we see STI consolidating to either the 2360 (23.6% downward retracement) or 2190 (38.2% downward retracement) levels in coming weeks/months. We also maintain our technical view that the consolidation is a ‘healthy’ one because once it ends; the E-wave count suggests that STI should make fresh YTD highs.
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