SINGAPORE: Singapore stocks, in tandem with the global sell-off, have been in free fall and given a rapidly-evolving COVID-19 pandemic, market analysts said it would be unrealistic to expect a stability in the market anytime soon.
Year to date, the benchmark Straits Times Index (STI) has slumped about 28 per cent, with much of the declines clocked this month. The most painful session occurred on Monday (Mar 23) when the index closed down 7.4 per cent – its biggest one-day fall since Oct 2008.
Even with a 6.2 per cent rebound on Tuesday, the blue-chip index remains firmly in bear market territory – a term that describes a decline of 20 per cent or more from recent highs – after tumbling 30.5 per cent from the peak of 3,415.18 reached during the April 29, 2019 session.
The declines so far have been much steeper than what the STI logged during the 2003 severe acute respiratory syndrome (SARS) outbreak, according to Phillip Securities’ head of research Paul Chew. Then, the index fell 15.5 per cent over a 115-day period.
“In this outbreak, STI is down twice as much,” he said. “This as the outbreak has turned global, in comparison with SARS which was confined within the Asia region.”
Although stimulus measures by policymakers worldwide could provide some comfort, the rising global number of infections and the uncertainty over how far it may spread will continue to stir market turmoil and concerns about repercussions on the world economy, analysts said.
“The coronavirus infection rates are still rising in the United States and in Europe. For now, it is difficult to see the scale and impact of the outbreak until there is a stabilisation of infection,” said OCBC Investment Research's head Carmen Lee.
“Companies are warning of lower profits, but no specifics were given. Estimates of the potential impact also vary widely,” she added, noting that this lack of clarity on earnings for at least the next two quarters has created additional market uncertainties.
Asked if she has a target for the STI or how much more downside the local market could see, Ms Lee noted that “there is no point talking about how low the market will go” as the rapidly-evolving disease outbreak renders any data or forecasts “irrelevant” in a matter of hours.
“But it may not be realistic to expect the STI to find any stabilisation anytime soon,” she said.
Singapore is set to announce a second stimulus package for businesses, workers and households on Thursday, but it remains to be seen whether that would calm market sentiments.
“Perhaps a small knee-jerk reaction but in the longer term, you still need to ensure that the situation is under control before the stock market can pick up in a more meaningful manner,” Ms Lee said.
IG market strategist Pan Jingyi said further downsides into the second quarter should not be ruled out.
“Certainly we have seen a slew of fiscal and monetary policies being introduced in an attempt to arrest the market turmoil, but the issue on hand is one of health risks and the worsening of the coronavirus situation on a global scale going into end-March suggests that the disruption could still remain for some time,” she told CNA.
“The economic assessment of the coronavirus impact across the West would be one to watch and could introduce further volatility to markets,” she added.
While the STI “appears cheap relative to historical performance”, Ms Pan added that it would be hard to pinpoint its trajectory into the second quarter given how it is very much influenced by external market developments, particularly the US.
As such, she said that the recent declines “may not be a falling knife to catch” and urged investors to stay cautious.
“A slow return into the market with a dollar-cost averaging strategy may be considered into the second quarter, but it would also be dependent on one’s risk appetite,” said Ms Pan.
Noting that it would be “very hard to time the bottom”, Ms Lee said investors can consider entering into smaller positions for quality stocks, such as real estate investment trusts (REITS).
“If you’re a medium to long-term investor, then this is an opportunity to slowly accumulate quality names, which you know are fundamentally very sound but in the short term (are seeing) share price volatility,” she told reporters during a conference call on Tuesday morning.
“We have been telling clients to re-look at their portfolios for better quality assets,” she said, citing REITS as an example that have become "easier to buy" due to the recent market sell-off.
Mr Chew said this is “a multi-year opportunity that investors should not miss”, with banks, telcos, REITS and electronics as his preferred sectors.
However it is “difficult to pick the bottom” and he suggests to “buy in stages” as an alternative.