Shares slightly higher at midday; 3,100 cap eyed

Singapore shares were slightly higher by the midday on Monday, as better-than-expected results from the “stress test” of banks in Europe provided the market some relief, but investors still remained cautious about the escalating debt problems in the euro zone and the United States.

Commodity traders such as Olam International (OLAM.SI) underperformed the broader market, on concerns that a failure to raise the U.S. debt ceiling could increase borrowing costs, traders said.

 

By the midday break, the Straits Times Index (STI) <.FTSTI> was up 0.74 points at 3,084.98. The total value of shares traded in the morning session was $477.1 million, down from S$478 million.

 

Local traders said they expect the STI to be capped at 3,100 in the afternoon.

 

“The EU stress test provided some temporary relief for investors as it removes one of the negatives that investors were cautious about,” said Carey Wong, an investment analyst at OCBC Investment Research.

 

“However, in the near term, we will likely still see the STI trading sideways due to the lack of positive news, until we see more postive guidance from companies during the upcoming earnings reporting season.”

 

With the sovereign debt crises in the euro zone and the U.S. unlikely to be resolved in the near term, many investors are unlikely to take long-term positions in risky assets, traders said. 

 

Olam shares were 2.4% lower at $2.48 by the lunch break with over 6 million shares traded. Fellow commodity trader Noble Group (NOBG.SI) was also down 2.2% at $1.745.

 

“If the U.S. does not raise its debt ceiling or ratings agencies downgrade its rating, this will be negative to commodity traders like Olam because their borrowing costs would increase,” said an analyst.

 

Chinese shipbuilder Yangzijiang (YAZG.SI) fell as much as 3% on Monday to a one-year low, weighed by concerns about the euro zone’s debt crisis and an oversupply in the bulk carrier market, traders said.

 

Shares of Yangzijiang were 2.3% lower at $1.28 with over 9.2 2 million shares changing hands.   

 

“There are worries that the worsening debt crisis in the euro zone could have some contagion effect and dampen orders from Yangzijiang’s Europe-based customers, given that about 70% of its revenue comes from Europe,” said an analyst.  

 

Investors have also turned more bearish on shipbuilders of bulk carriers such as Yangzijiang, as the sector faces an over supply in the near term, traders said.