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TAKING STOCK: Market likely to stay under pressure

Analysts say Bush’s economic rescue plan will do little to assure investors

A FISCAL stimulus package unveiled last week by United States President George W. Bush may not be enough to assuage market fears that the US economy is headed for a slowdown.

The Dow Jones Industrial Average closed at a 10-month low on Friday, losing 59.91 points to 12,099.3, while the Nasdaq Composite Index ended 0.3 per cent lower at 2,340.02.

Some dealers explain that this may be because Mr Bush’s economic stimulus package, which promises as much as US$150 billion (S$215.5 billion) in new measures, will take some time to pass Congress.

There have also been hopes that US Federal Reserve chairman Ben Bernanke would make an early cut to the central bank’s discount rate, but these seem to be quickly evaporating.

The Federal Open Market Committee is set to meet on Jan 29 to 30, and an interest rate cut is all but a done deal.

The Singapore market, as a result, is expected to trade sideways at best this week, following the US market’s dismal performance.

There will be little by way of economic data from the US to give further direction, although the market may take its cue from the earnings reports of US technology giants.

Computer chipmaker Intel has already come in below expectations. Reporting this week, and likely to give some idea of whether the tech sector is slowing down, are Apple, Motorola and Microsoft.

Mr Kevin Scully, the managing director of boutique capital house NRA Capital, is inclined to think that the market is likely to trend downwards.

‘If you see what people were bullish about, it was hopes of a rescue package. However, the underlying concerns, about weakening US consumption, for instance, are still present.’

Some dealers are looking for a technical rebound this week, as they consider Singapore stocks oversold.

The local reporting season has already begun, with Qian Hu’s results among the first out. More companies are expected to report this week, including CapitaMall Trust, which should unveil full-year results tomorrow.

There have been no nasty surprises so far, but some traders say the market is in such a negative mood that whatever good news comes along may not give much of a boost.

Some stocks with richer valuations, such as property counters, could give up some of their gains, as the results start trickling in, Mr Scully said.

Investors will also start taking defensive stocks seriously, he added.

Many investors will be focused on the local banks’ results, in particular those of DBS Group Holdings, which has said it has some exposure to collateralised debt obligations. It is also expected to name a new chief executive soon. It will report its results before the market opens on Feb 15.

SOME CAUTION NEEDED

‘People were bullish about hopes of a rescue package, but the underlying concerns are still present.’

MR SCULLY, of NRA Capital

Source: The Straits Times 21 Jan 08

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