DESPITE GETTING OFF to a slow start, the Straits Times Index managed to edge 2% higher to 2,318 points. Among the largest gainers in the STI was commodities supply chain manager Olam International, which saw its stock rise 10% last week to $2.44. Olam has won a bid to purchase selected assets of a major tomato processor in California, the US, called SK Foods. Olam will pay US$39 million ($56.7 million) for the assets in a deal that is expected to be completed by July 10, five days before the start of the harvest. While Olam does not expect the business to be earnings accretive in FY2010 (Olam has a June year-end), it hopes to achieve steady-state revenues of US$200 million and Ebitda (earnings before interest, tax, depreciation and amortisation) margins of 12% to 13% from FY2012.

 

Arguably, some money and attention may have shifted from stocks to the property market, as those who cashed out have diversified into properties with realistic prices and attractive packages.

 

Yet, even as the markets take a breather, analysts and brokers are advising clients to take the opportunity to selectively load up on stocks, as the majority are expecting the rally to continue in the weeks ahead. Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors, points out that bear rallies typically last on average about seven weeks, while the current rally has gone on for about 12.

 

Oliver sees the recent pullback as a natural correction phase that will need to run its course but will eventually lift. He likes the consumer discretionary and resources sectors, as well as companies that will benefit from increased infrastructure spending, such as those in construction and building materials.

 

One hot stock that falls into those categories is steel company Midas Holdings, which rose 9.6% to 80 cents last week. Midas announced five orders over the last two weeks with an aggregate value of RMB845 million ($179.7 million). According to Credit Suisse estimates, this raises its current order book to $240 million and secures almost 90% of FY2010 revenue forecasts. “We believe that the risks to our order book estimates for Midas lie on the upside,” says Credit Suisse. It has raised its FY2010 earnings estimates by 4% and its target price to $1.05 from 80 cents.

 

With the 1Q2009 earnings reporting season kicking off, and two days of window dressing left this week, dealers are hoping markets will again pick up slightly. Some attention may also be focused on opportunistic plays like oil trader Chemoil Energy, which announced last week that its majority shareholder, the family of late founder Robert Chandran, is discussing a possible sale of its stake. 

 

Important US economic data being released this week include the ISM manufacturing and labour market numbers for June. Meanwhile, in Singapore, the June Purchasing Managers Index will be reported.