In May 09, after a dearth of equity deals for a year, capital markets burst into life too - partly pent-up demand, partly due to existing shareholders keen to take profit after a good run. Markets headed higher thereafter. We maintain Trading Buy on the FSSTI and end-1H12 3,340 target (14x P/E).
What Happened
In the past four weeks, there has been a pickup in equity issuance and a stake sale. Three weeks ago, Ezion sold S$96.8m worth of new stock (15.4% of existing share capital). A week ago, Temasek sold down S$327.6m worth of SembMarine from its existing stake (3%). Ezra did a S$121m-placement (10%) this week. With placements/sale of vendor stakes forthcoming for stocks that have done well recently, there are concerns whether this signifies the ‘smart’ money getting out, and the market peaking.
What We Think
We do not think so. First, the amount of equity issuance seemed high only because we came from two extremely quiet quarters when there was hardly any issuance. At its peak, the FSSTI sees cumulative equity issuance of up to S$1bn per month. Second, equity issuance tends to spike up after a major rally (>10%) or after markets crack up big-time. We do not see any significant link between stake sales and equity issuance and the market peaking thereafter.
What You Should Do
Markets are directionless at the moment after the relief rally in Jan-Feb. We read that rally as the unwinding of the fear trade. Cyclicals that were most depressed rebounded the most. We think quality will lead the next leg. If the market falls back, we will look to add stocks. Our top picks are CDL-HT, DBS, Ezion, Genting Singapore, GLP, Indofood Agri, OUE, Sakari and Sembcorp Industries. (Read full report)
Source : CIMB Investment Research
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