Penny stocks steal the show

STI rises 10.77 points as benign Wall Street, news of China's export growth contribute to positive sentiment

THE Straits Times Index yesterday rose 10.77 points to 2,933.53 in line with a rise in Hong Kong and expectations of a firm Wall Street on Monday. Turnover excluding foreign currency issues was the highest so far this year at just over three billion units worth $2.1 billion; and the unit average of about 69 cents was in keeping with recent daily averages.

Brokers pointed to a benign Wall Street as contributing to the positive sentiment; also helping was news of China's large export growth. The only qualifier was that penny stocks have now taken over market leadership, traditionally a sign of overheating.

Among the property stocks in play was CapitaLand, which ended six cents higher at $4.30.

JP Morgan, in a Jan 6 report, called an 'overweight' on CapitaLand with a $5 target price.

'CapitaLand's stock price is likely in our view to be propelled by how successfully it deploys the investment capacity it now possesses across its portfolio to achieve balanced growth in the medium-to-long term. In addition, the declaration of a special dividend and the group's investment plans in its FY2009 results in early February 2010 should also represent a key share price catalyst,' said JPM. Its price target is based on a sum-of-parts valuation.

In the shipping sector, NOL stood out with a 12-cent jump to $1.90. In upgrading NOL to a 'buy', Deutsche Bank last week said that it thinks improving quarterly earnings will be the key re-rating catalyst. 'After underperforming the STI by 17 per cent over the last 12 months, we expect this to reverse over the coming months,' said Deutsche. It said that it has upgraded its 2011 estimated EPS (earnings per share) by 79 per cent as it expects recovery momentum to continue into 2011 and thus revised its target price to $2.04 based on 1.4x 2010 estimated price/book.

Elsewhere, Macquarie Equities Research said in a report yesterday that it remains 'neutral' on local banks as there is a lack of growth catalysts for the near term and the sector is trading at 1.6x book value, at its historical mean.

Macquarie said that the three banks' share prices have largely discounted expectations of better net profit in FY2010 and the key issue confronting them is earnings catalysts. 'This hinges on a combination of weak domestic loan growth and margin pressure,' said Macquarie. 'The latter is partly predicated on our view that interest rates may not trend up until H2 2010, which may face headwinds from ongoing competition as some regional and global banks return to the market'.

Among the China stocks in play was China Sports, which added 2.5 cents to 22.5 cents, after news that the company has signed an agreement with Global Brands Group to distribute official Fifa football clothing. In a 'buy' call, DBS-Vickers said that although the impact on 2010 earnings will not be significant as the company will need to start building new stores, the deal substantially brightens China Sport's prospects. DBSV set a 35-cent target price.

In its latest chart view, DMG & Partners said that it expects the STI's uptrend to continue.

'Initial resistance is identified at the 2,960 mark as depicted by the trend high on July 31, 2008. Should this barrier be broken above, the STI is then forecasted to accelerate to the second resistance at the 2,997 level. The support levels, meanwhile, are seen at the 2,896 and 2,863 levels respectively.

Stock Exchange Updates

Frank Castle says it happens a lot and that is why he does not buy stock priced below a dollar. But why wouldn't this go higher then in it's limits and affect higher priced stocks? What could I do to ensure this did not happen to me? A person I talked to said that this happens when people use insecure networks to do their trading, like hotel networks...


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