Market Update.

This report was compiled by DBS Vickers this morning:

The anticipated short-term pullback in the STI that we highlighted started yesterday with the STI dipping 25pts to 3007. Our view remains unchanged:

A pullback towards 2927 this week before the index attempts the upper band of the trading range at 3167. A marginal rebound in the morning session should been seen as an opportunity to lighten up the high beta plays for very short-term traders. Support for these small caps should come in above their recent lows.

The $4 drop in oil price vindicates our view that commodity markets are likely to be volatile (wild swings) and may see weakness eventually as possible de-leveraging activities by hedge funds continue. The next immediate downside level for oil is USD96pbl. Avoid CPO plays.

Feb-08 loans grew 21.9% y-o-y and 6.8% q-o-q. This is higher than Jan-08 growth of 20.6% y-o-y and 5.7% qo-q. All sectors grew at a faster pace; notably the construction sector grew 48.7% y-o-y and 18.8% q-o-q (Jan-08: 48.7% y-o-y and 18.8% q-o-q).

And the main beneficiaries would be DBS and OCBC based on their respective exposure to the sector. Meanwhile, UOB should gain from the continued strength in housing loans:

Note: This is surprising since the consensus has been that the property market has been weak.

Which grew 16.0% y-o-y and 1.8% q-o-q. DBS Research expects OCBC to gradually pick up strength. We remain Neutral on Singapore banks with a Buy call for OCBC (TP S$9.00) and Hold call for UOB (TP S$19.30). STI. We switch our preference to OCBC from UOB, because OCBC appears more defensive and its operating parameters are strong. We think UOB now carries a premium.

DBS Research downgrades Singapore Exchange to Hold from Buy; TP: S$ 8.03 (Prev S$ 13.20). SGX’s earnings visibility is cloudy given the uncertainties in regional and global markets. We continue to expect derivatives activities to remain fairly robust, but new listings will slow down in 2008 as the equity market is expected to remain soft. However, trading volume has stabilised at around 1,700m-1,800m in 1QCY08 despite intermittent upside blips that are dependent on regional markets.

The market capitalization of Singapore-listed companies dropped to $692.5bn as at 31 Mar, eased 13.2% from end- December. Yangzijiang, Singapore Exchange, Cosco and China property group Yanlord led the losers among stocks in the benchmark FTSE Straits Times Index. Defensive stocks like SingTel, Starhub and SPH were in favour as investors preferred companies with strong cash positions and low volatility.

Soybean oil prices declined by 6.7% in CBOT overnight, which we believe would be a signal similar movement in palm oil prices today. The drop essentially reflects US soybean planting intentions next season as resported by the USDA, which are to increase by 18% or approximately 4.6m hectares. Our CPO price assumptions are based on the assumption that soybean planted area continue to decline by 2%. We will review our CPO price assumption to take this into account, although we believe supply should remain tight and demand should remain strong in the medium term.

In property news, Bravo Building Construction, a small property which snapped up over S$800m worth of en bloc sale deals last year, making it the 4th-largest buyer of en bloc sites in Singapore, has delayed the completion of two deals due to funding issues and walked away from another.

Bravo had bought the freehold Pender Court condo at Telok Blangah last July for S$80m (around S$872 psf ppr) and soon after purchased the freehold development Tulip Garden near Holland Road for S$516m (around S$1,018 psf ppr). However, completion of both deals have been delayed as Bravo requested for extensions. In addition, Bravo also announced that the S$162.8m collective sale of Makeway View in Newton (or about S$1,583 psf ppr) has been rescinded. This could indicate sagging confidence in the high-end market around Newton.

The URA put a one-of-a-kind hotel site in Balestier Road on the market. The 1.77-hectare plot, next to Sun Yat Sen Nanyang Memorial Hall, includes a 0.46-hectare park. The site has a maximum permissible gross floor area (GFA) of 430,556 sq ft. At least 60% of this must be set aside for hotel and hotel-related use. The rest can be used for commercial and residential purposes.

The cost of shipping Middle East crude to Asia, the world's busiest route for supertankers, may drop as oil companies delay hiring the ships they need, causing vessel supply to accumulate. There are 95 VLCCs available for hire within the next 30 days, compared with 66 for hire in March at the end of February.

US markets were lifted by modest gains as the first quarter drew to a close. Oil price tumbled $4.04 to USD101.58pbl. Gold dipped $8 to USD928.5 per ounce as the USD Index gained 0.2% to 71.74. After the bell, Lehman Brothers said it will offer 3.45mil shares of convertible preferred stock to boost cash flow and reduce debt.