Spore Market

Spore Market: likely to open higher after US stocks posted sharp gains Tuesday, their 4th-straight positive session thanks to easing fears over a Greek default; news Greece's government survived a key vote of confidence is also likely to boost sentiment. Yday the benchmark STI closed up 1.3% at 3054.

The STI is tipped to head towards, and maybe retest, the 3100 level; a break above 3100 would point to a more sustainable near-term recovery. Until that happens, mkt watchers may view the recent bounce as just a technical rebound because of the heavy correction over the past 2 weeks.

The STI is up 1.6% over the last two sessions, rebounding from an 8-session, 3.6% fall. Battered down property plays, including large-cap developers such as CapitaLand, have led that rebound and may remain in focus.

Spore market outlook: general consensus among brokers is that the STI will end higher by yr end.
CIMB highlights the Spore mkt does not look expensive at 1.6x P/B and 12.8x fwd PE on 10% EPS growth.
Goldman Sachs also views Spore valuations as reasonable, albeit not low enough to counter a period of soft profit growth.

Brokers still see tourism sector as one of the preferred ones that will ride out this patch of mkt uncertainty.
Credit Suisse highlights that the pricing power for the tourism sector is likely to remain strong given robust demand, high utilisation rates and limited incremental capacity. Meanwhile, the 6% appreciation of the SGD against the Spore 'tourism-weighted' basket of currencies shows that the impact is not as significant as the headline SGD/USD appreciation of 14% suggests.

Separately, the theme of dividend surprises was also raised, with CIMB highlighting "Spore stocks that trade >4% yields, yet pay out <80% of their earnings are M1, Venture, F&N and DBS.

JPM highlights that the STI is usually well correlated with earnings growth trajectory, with key mkt inflection pts anticipating the earnings trend with a 6-12 mth lead historically. Barring an external shock of similar magnitude as the Asian financial crisis, the house believes its estimates for Spore's earnings trajectory, whilst decelerating, will continue to remain in growth mode in the next 2-3 yrs.

CIMB, Citi and Goldman have yr-end STI tgts of 3440, 3500 and 3600 respectively.