Santa Claus’ sleigh may have started its rounds in the North Pole but markets are watching out for other red signs as short-term uncertainties spur more profit taking and a rush to safe havens as the year winds down to an end. Strong economic headwinds (US Fed Chairman Ben Bernanke’s caution on Tuesday that “We still have some way to go before we can be assured that the recovery will be self-sustaining” set the Dow back a 100 points), continued sovereign debt downgrades and worries about Dubai’s problems spreading dominated Wednesday.

Dubai World’s property unit Nakheel PJSC’s US$3.52 billion ($4.9 billion) of Islamic bonds due Dec 14 dropped more than 10% yesterday to 46.5 cents on the dollar, according to Citigroup Inc., reported Bloomberg, and bonds sold by DIFC Investments and Dubai Holdings Commercial sank as low as 44.5 cents on the dollar after Moody’s Investors Service cut the credit ratings of six state-run companies.

Then Greece’s Finance Minister George Papaconstantinou came out to say there’s “absolutely” no risk that the country will default on its debt. “We’re moving swiftly to reassure citizens and markets that we’re moving in the right direction.” The minister also said that Greece would not seek a European Union aid package. Standard & Poor’s had placed the nation’s debt on watch for a downgrade two days ago, and Fitch Ratings followed yesterday by cutting Greece’s credit rating one level to BBB+ from A–.

Asian markets across the board followed the Dow down today, although it was more muted.

Locally, the FTSTI lost 0.3% to 2,797.21 at the close. The oil and gas sector dominated attention, with services provider KS Energy’s announcement that it is consolidating its distribution businesses into one new $320-million entity called KS Distribution, by taking private its subsidiary, Aqua-Terra Supply (ATS), and its associated company, SSH Corporation. For every ATS share, an ATS shareholder will stand to receive a combination of $0.23 in cash and 0.125 KS Energy shares, a 28.9% premium over last traded price. SSH shareholders will stand to receive $0.16 in cash and 0.1 KS

Energy shares. This represents a 14.6% premium over last traded price.

The developments are in line with DBS Vickers’ 2010 strategy theme released yesterday that said “our key investment thesis is for builders to outperform asset owners/operators, due to the resurgence in orders”.
“The key difference from the bull market in 2004 is that this order flow resurgence will be led by production-related contracts in 1H 2010, which are the bottlenecks for oil companies’ cash flows after a pause in capex in 2009.”
The broker picked Sembcorp Marine (+20% to Target Price: $4.26), PEC (+26% to TP: $0.88) and Swiber Holdings (+40% to TP: $1.24).

Another growth area is by acquisition of offshore assets. DBS says, “We believe that companies that raised equity early in 2009 should benefit as the industry recovers. They are well positioned to purchase in 1H 2010: 1) Distressed offshore vessels, and 2) Smaller-sized companies with the required skill sets, but weakened financials.”

It picked Ezra Holdings (+26% to TP: $2.77) and Mermaid Maritime (+40% to TP: $1.11). The report said the key “inflexion points” to watch for in 2010 are a W-shaped economic recession that may push oil back to US$50/bbl, weaker-than-expected margins for new orders due to stiff competition and slower than expected easing of tight credit.

Chartwatch: Sideways STI


Phillip Securities’ technical analyst said a day ago, “The odds in the equity market now are stacked in favour of the bears.”

“Right now, the odds are pointing towards a weaker equity market in the short term. The STI & S&P 500 have both been trading around rather key levels, (2,800 and 1,100 to 1,110 respective) and formed momentum divergences off those key levels. In addition, we have the Dollar appreciating very sharply from tagging strong support in the 74.50 to 74.00 region. We might see a continuation of Dollar strength, with the possibility of a push past 76.00 within the next week,” the analyst noted.

“At this point in time, we see a lot more down side risk present than upside potential and advise investors to stay out of longs for the time being.”

DBS Vickers says, technically, the Dow has been resisted at the 10,500 level in the short-term. A pullback to 10,000 is seen over the next 1–2 weeks. The 10,350 level however caps immediate bounces.

The focus is on this coming Friday’s data on November US retail sales and a deluge of Chinese economic data that will indicate how consistent and strong the global recovery really is.

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