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Further STI rally unlikely in the short term, say analysts

After testing new highs for the year in recent sessions and touching 12-month peaks, the benchmark STI appears to have hit resistance at the 3300 level.

SINGAPORE: After testing new highs for the year in recent sessions and touching 12-month peaks, the benchmark STI appears to have hit resistance at the 3300 level.

Some analysts say this suggests that a further rally is unlikely in the short term.

Mall developer CapitaMalls Asia is being taken private by CapitaLand in a deal valuing it at more than S$3 billion, while agri-commodities trader Olam has been a target for investment firm Temasek.

These two stocks are among Singapore firms seeing increasing mergers and acquisitions activity.

A spate of acquisitions in the Singapore's corporate space has driven up the valuations of Singapore stocks, as investors speculate and bid up the share prices of potential takeover targets.

Since hitting a low this year of 2960 in February, Singapore's benchmark STI has been on a steady climb, regaining all the lost ground and more, before closing above 3300 points earlier this week.

However, it has since been seeing some resistance.

"In terms of valuations, the Singapore market is not cheap anymore,” said Kelvin Tay, regional chief investment officer (Southern APAC) at UBS Wealth Management.

“At maybe 3,000 points, yes, the Singapore market is cheap and therefore, there are potential takeover targets based on the valuations. But at about 3,300 points, it's actually quite fairly valued. And therefore, unless you are trading under distressed valuations, I don't think you're going to be attracting a lot of interest."

Market analysts also note that current trading volumes may not be strong enough to keep the market up.

Latest numbers from Singapore Exchange show that the total value of securities traded in May was S$23.4 billion -- a drop from the previous month and a 38-per cent drop when compared to a year ago.

"Investors as a whole are still quite nervous or jittery about the market,” said Audrey Goh, investment strategist at Standard Chartered.

“Basically, if you look at last year, last year's performance was essentially flat. But there has been significant volatility and big swings in the market that probably kept a lot of investors on the sidelines."

For those in the market, what could be supporting interest amid the current low interest-rate environment is the dividend yield of 3.3 per cent that the Singapore market is offering.

For foreign investors, a strong and appreciating Sing-dollar guarantees currency gains to be had. 

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