■ STI – ECB QE speculation to fuel rebound towards 3150 by November before stalling
■ Liquidity driven rise - Banks, property stocks & SGX
Hopes of more QE in December by the ECB and the PPOC’s rate cut over the weekend helped keep the rebound alive as short-term liquidity improves. Expectations for the Fed to start raising rates have also taken a step back.
For the STI, we now see the possibility for the current rebound to extend moderately further towards 3150 (instead of 3100 ‘overshoot’), which coincides with the 50% upward retracement and closer to the 200-day exponential moving average. Near-term support is around 3045, firmer at around the 3000 level.
It’s a short-term liquidity driven rally rather than an improvement in economic fundamentals or corporate earnings outlook. Thus, we view the current recovery as a counter-trend rally and are watchful for a stall should the STI head closer towards 3150 over the next two weeks. That is, ride the trend now but further gains towards 3150 will open up more profit-taking opportunities.
SGX shares should be underpinned by the near-term liquidity improvement. There is upward bias to $7.89 on charts.
We look for index heavyweight banks, property counters City Developments and CapitaLand to tilt the index higher towards 3150. Technically, OCBC shares should head for $9.75, which is also not far away from our fundamental $10 TP. UOB’s immediate resistance is at the 38.2% upward retracement level at $20.86.
For CapitaLand, we see further upside capped at $3.30. City Development looks on target to test the 38.2% upward retracement level at $8.50 (refer to Wired Weekly dated 19 Oct). Beyond that, the 50% retracement is at $8.78.
The 3Q results season has been uninspiring thus far with the usual in-line results from S-REITs while rig builders reported weak results. This is an important week for corporate results with banks OCBC and UOB, SMRT, SembCorp Industries and Global Logistics Prop reporting. (Read Report)
Source : DBS Group Research