Oil and gas stocks take a hit on softer oil prices

SINGAPORE - It used to be that a fall in oil prices was a positive for stocks because it lessened inflation and interest rate worries. Not so anymore. The slide in oil over the past few days was said to be responsible for the collapse in oil and gas stocks, which indirectly led to a 1.31 points loss in the Straits Times Index at 2,487.20 on Tuesday.

Still, notwithstanding the broad-based softness, there were still a small handful of profitable opportunities - Singapore Airlines and Neptune Orient Lines, for example, both rose as a direct consequence of the oil price fall.

However, blue chip oil and gas plays Keppel Corp, SembCorp Industries and SembCorp Marine's falls helped drag the index lower and with it, sentiment - excluding warrants and bonds, the broad market recorded 122 rises against 216 falls while 402 stocks were either unchanged or not traded.

'Many of the oil and gas plays have had a superb run on the back of rising oil prices,' noted a dealer. 'So maybe now it's not so surprising to see them drop like this.'

Among the big falls in the sector were KS Energy and Labroy Marine, the former dropping 6 cents to $2.21 and the latter losing 10 cents at $1.55 with 20 million traded. Elsewhere, palm oil firm Wilmar's shares collapsed by 9 cents at $1.03 with 31 million traded.

Monday's weakness came despite an overnight reversal on Wall Street that saw stocks first drop into negative territory but eventually close the day firmer. It also came even though Hong Kong closed sharply higher and Europe opened higher.

'There's been a loss of momentum and liquidity recently,' said a dealer. 'This and the fact that the market's focus is now much narrower than before is keeping players away.'

Meanwhile, US newspaper Barron's in its Sept 4 issue examined the issue of what the rest of this year holds in store for Wall Street by asking top US fund managers and analysts for their views. Goldman Sach's Abby Joseph Cohen was the most bullish, saying the US is 'entering a second, more comfortable phase of the bull market where economic growth remains strong enough to generate additional profit gains...and stock valuations are reasonable'.

JP Morgan's Abhijit Chakrabortti, on the other hand, believes a more likely scenario is for investors to shy away from the 'asymmetric risk-reward' offered by US stocks. 'The S&P 500 dividend yield of 2 per cent is still below the long-term average of 3.5 per cent and investors aren't compensated enough for their risk' said Mr Chakrabortti.