<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published April 21, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Citigroup, UBS say economy may have bottomed
Former suggests growth possible in Q4; both overweight on banking sector
By OH BOON PING
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STRIKING a positive note, Citigroup and UBS predict that the economy may have turned the corner, with the former predicting a recovery as early as the fourth quarter of this year.
Both houses are now overweight on the local banking sector, and their top picks include DBS, United Overseas Bank and Singapore Exchange.
In a report, Citi said that the worst may be over - after gross domestic product shrank 11.5 per cent in Q1 - as several economic indicators appear to be stabilising.
For example, non-oil domestic exports went up month-on-month on a seasonally adjusted basis for two consecutive months in February and March, after a sharp fall in January.
Also, industrial production declined at a slower pace of -22.4 per cent in February, versus January's -29.8 per cent.
UBS said that global and local data, including non-oil retained imports and the PMI, support its view that Q1 marked the bottom of the GDP growth cycle.
Additionally, aggressive global fiscal and monetary easing, coupled with the Singapore Government's fiscal measures and the two integrated resorts, should lend substantial support to any economic recovery.
Therefore, Citi economist Kit Wei Zheng expects smaller contractions of -8.2 per cent in Q2 and -6.2 per cent in Q3. Tepid growth could come in Q4, before the economy expands 6.7 per cent in Q1 next year.
UBS economist Chiou- Yi Chang believes that the economy will contract 5 per cent this year, with a substantial trough of -9 per cent in Q1, and then recover incrementally to -7 per cent in Q2 and -2.2 per cent in the second half.
Plus, says Citi, the stock market appears to be in the late stage of a bear cycle, and valuations have become attractive, 'trading at 1.15x price-to-book, about one-and-a-half standard deviations below our adjusted historical price-to-book value (P/B) mean of 1.63 times, and among the cheapest in Asia ex-Japan'.
The research house has a target for the Straits Times Index of 2,400 by March next year, while UBS forecasts a year-end STI of 2,100.
Both banks are also overweight on financial stocks, including the banking sector here.
Based on past cycles, the banks tend to lead stock market recoveries and 'reversion to 'normal' bank price-book trading ranges, which at the minus-one standard deviation level is one to 1.4, is a key factor', said Citi.
Although the weak Q1 GDP figures may suggest that poor bank results are on the cards, 'consensus may have already factored this in, with estimates cut 42 to 53 per cent from their peak. Robust net interest margins may support the top line and greater clarity on provisions may prove to be a positive (our 2009E assumption: 85 basis points of loans). Book value erosion is less of a risk as markets rise.'
UBS pointed out that Singapore banks remained profitable through the Asian financial crisis - 'a track record we expect to be maintained in this cycle'.
Also, 'the competitive positioning of the three local banks is likely to be at its best in the past six years. Latest refinancing (figures) suggest that even blue-chip government-linked companies now have to pay interest spreads of 180-200 basis points, up from a low in 2006 of 15-30 basis points'.
Citi's target prices for DBS, UOB and SGX are $12, $14 and $8 respectively.
As for UBS, its price targets for those stocks are $10.30, $13.40 and $6.50.
Besides financials, Citi is overweight on commodity stocks, while UBS is bullish on property. Both are underweight on telcommunications.
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Citigroup, UBS say economy may have bottomed
Former suggests growth possible in Q4; both overweight on banking sector
By OH BOON PING
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
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</TD><TD>Feedback</TD></TR></TBODY></TABLE>STRIKING a positive note, Citigroup and UBS predict that the economy may have turned the corner, with the former predicting a recovery as early as the fourth quarter of this year.
Both houses are now overweight on the local banking sector, and their top picks include DBS, United Overseas Bank and Singapore Exchange.
In a report, Citi said that the worst may be over - after gross domestic product shrank 11.5 per cent in Q1 - as several economic indicators appear to be stabilising.
For example, non-oil domestic exports went up month-on-month on a seasonally adjusted basis for two consecutive months in February and March, after a sharp fall in January.
Also, industrial production declined at a slower pace of -22.4 per cent in February, versus January's -29.8 per cent.
UBS said that global and local data, including non-oil retained imports and the PMI, support its view that Q1 marked the bottom of the GDP growth cycle.
Additionally, aggressive global fiscal and monetary easing, coupled with the Singapore Government's fiscal measures and the two integrated resorts, should lend substantial support to any economic recovery.
Therefore, Citi economist Kit Wei Zheng expects smaller contractions of -8.2 per cent in Q2 and -6.2 per cent in Q3. Tepid growth could come in Q4, before the economy expands 6.7 per cent in Q1 next year.
UBS economist Chiou- Yi Chang believes that the economy will contract 5 per cent this year, with a substantial trough of -9 per cent in Q1, and then recover incrementally to -7 per cent in Q2 and -2.2 per cent in the second half.
Plus, says Citi, the stock market appears to be in the late stage of a bear cycle, and valuations have become attractive, 'trading at 1.15x price-to-book, about one-and-a-half standard deviations below our adjusted historical price-to-book value (P/B) mean of 1.63 times, and among the cheapest in Asia ex-Japan'.
The research house has a target for the Straits Times Index of 2,400 by March next year, while UBS forecasts a year-end STI of 2,100.
Both banks are also overweight on financial stocks, including the banking sector here.
Based on past cycles, the banks tend to lead stock market recoveries and 'reversion to 'normal' bank price-book trading ranges, which at the minus-one standard deviation level is one to 1.4, is a key factor', said Citi.
Although the weak Q1 GDP figures may suggest that poor bank results are on the cards, 'consensus may have already factored this in, with estimates cut 42 to 53 per cent from their peak. Robust net interest margins may support the top line and greater clarity on provisions may prove to be a positive (our 2009E assumption: 85 basis points of loans). Book value erosion is less of a risk as markets rise.'
UBS pointed out that Singapore banks remained profitable through the Asian financial crisis - 'a track record we expect to be maintained in this cycle'.
Also, 'the competitive positioning of the three local banks is likely to be at its best in the past six years. Latest refinancing (figures) suggest that even blue-chip government-linked companies now have to pay interest spreads of 180-200 basis points, up from a low in 2006 of 15-30 basis points'.
Citi's target prices for DBS, UOB and SGX are $12, $14 and $8 respectively.
As for UBS, its price targets for those stocks are $10.30, $13.40 and $6.50.
Besides financials, Citi is overweight on commodity stocks, while UBS is bullish on property. Both are underweight on telcommunications.
</TD></TR></TBODY></TABLE>
</TD></TR><TR class=caption><TD>Prof Roubini: 'The current rally is a bear-market rally... This is a dead-cat bounce, sucker's rally, whatever you want to call it.' </TD></TR></TBODY></TABLE>Corporate earnings will 'surprise on the downside,' Prof Roubini said in a speech in Hong Kong yesterday. 'Lots of banks, even the better ones, are going to be in trouble.'
