Market mood has turned negative as indices decline. Just 1-2 months ago, consensus views were that the credit crisis was in terminal stages and that equity markets would rally.
On our end, we had lighted in March, that contracting credit market spreads would usher in a bear market rally which could take the STI towards 3180.
While the index rebounded 2.5% higher to 3267, we maintained a sell into strength stance on the basis that the ensuing bear rallies would bring the STI, HSI, FTSE and US indices towards prior lows. Recent price action has vindicated our views. So where do we go from here ?
While general patterns appear similar across markets, the magnitude defers for various reasons. In US, the DJIA has broken below its prior low, while the S&P500 has not. We still see further downside towards 10800-10900 range for the DOW but expect a rebound towards 11500 in the early part of the week.
For the STI, our minimum downside target of 2940 was met last week, as the index declined to a low of 2922, but closed at 2955. Clearly, the Singapore bourse is resilient, relative to US or perhaps there is complacency. Banking stocks in particular have not declined sufficiently in our opinion to warrant buy recommendations. As such, we still expect further declines on the STI. Any near term rebound should be capped at 2960-2980 range.
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