The Straits Times / The Business Times News on Hyflux

Creative, Hyflux may catch the eye of punters

But high oil prices could keep gains in check as investors hunt for bargains

THE stage is set for the battle of two opposing forces that will determine the direction of the local bourse in the coming weeks, observers say.

With the earnings season coming to an end, traders say the fear of high energy costs will once again influence investors as they go on a bargain-hunt for oversold counters.

The market barometer, the Straits Times Index (STI), last week saw one of its worst weekly performances since February. It lost 35.67 points over the week to close on Friday at 2,303.2.

'There's a possibility of a technical rebound as investors go bargain-hunting. But with oil prices above US$66 a barrel...this will keep the lid on any gains this week,' a trader said.

Indeed, surging crude oil prices have finally dampened sentiment in the United States.

The Dow Jones Industrial Average last Friday fell 85.58 points to 10,600.31. The tech-laden Nasdaq Composite Index slumped 17.65 points to end the week at 2,156.9.

'Despite the decoupling of Singapore and US stocks, the fall on Wall Street is a signal of what high oil prices can do to local market sentiment,' a dealer said.

Despite the fear, traders say investors with an appetite for risk are likely to enter the market to buy oversold stocks.

Creative Technology is likely to be one of them. The maker of the Zen MP3 digital music player last week saw its shares tumble after confirming market fears.

Bruised by the ferocious battle in the highly competitive MP3 market, Creative last week reported a net loss of US$31.9 million (S$52.9 million) in the three months ended June 30 - its first quarterly loss in three years.

The worse-than-expected result led scores of analysts to slash their earnings estimates for the firm. But those at DBS Vickers Securities chose to buck the trend.

'With the stock now trading near book value and the Christmas quarter approaching, we believe downside risk is likely limited while earnings momentum should pick up from the trough,' DBS said in its report on Friday.

It has upgraded its recommendation on the stock to 'hold', with a price target of $14. Creative shares ended last week at $12.

Investors are also likely to cast their eyes this week on water treatment firm Hyflux, whose shares managed to stage a late comeback last week after a massive sell-off.

Hyflux shares last Friday climbed 14 cents, or 5 per cent, to close at $3.20.

But the rebound still left the counter off 10 per cent for the week and down $184 million in its market value after analysts, such as those at CIMB-GK Research, poured cold water on the stock.

The broking house had said that Hyflux's 'current valuations appear rich, given the risk of unproven execution'.

Given these pockets of activity that are likely to buoy the market this week, observers say the dampening effect of high oil prices may be kept at bay.

azrin@sph.com.sg