Having risen to 2686, the STI P/B of 1.65x is already back to the 12-year (we use the period commencing Asian Financial Crisis to cover one full cycle) average of 1.61x. We believe the following factors could exert downside pressure on the STI (possibly down 10% to 2380) in the short term:

• Singapore's economic recovery is seen to be mild – we are forecasting 2010 GDP growth of 1.2%, lower than the 1996-2008 CAGR of 5.2%. The soft US government bond yields suggest the market is not convinced of a sharp US economic recovery.

• Low value per share traded suggests that we may be close to the tail end of the run. In mid 07, the value per share traded was S$0.67, a low point, and the STI hit its peak three months later. We believe the current strength in penny stocks trading (value per share traded of S$0.74 for the first three weeks of Sep 09) could augur some STI weakness going ahead.

Current STI P/B level close to the average over the past 12 years

However a 12-month STI level of 2980 is achievable. On a 12-month time horizon, the global economies will be much more stable. In addition, interest rates should still remain benign, though marginally higher than current levels. We see adequate liquidity (as measured by M3) helping to drive the STI higher to 2880 on a 12-month timeframe (up from our previous 2800 target).

We are Overweight on:

• Property sector
Soft interest rates and excess liquidity will drive demand for residential properties, and we expect new launches to be well taken up going forward. This will drive property share prices higher. Our property analyst’s top picks are City Developments (BUY\Target Price: S$12.00) and Wing Tai (BUY\Target Price: S$2.15).

• Offshore & marine sector
Stabilising crude oil price is an incentive for oil drillers, as approximately 90% of deepwater oil fields are economical at crude oil price in excess of US$60/bbl (versus currently about US$70). We believe that both Keppel (BUY\S$8.46\Target Price: S$8.82) and SembCorp Marine (BUY\S$3.23\Target Price: S$3.74) are well-positioned to benefit from new rig orders, given their strong track records. We continue to advocate our overweight stance on offshore marine players. For the mid-cap players with O&M exposure, we like Ezra Holdings (BUY\Target Price: S$2.39).

• Hospitality REIT segment
Yields have come off sharply after the recent surge in prices of REITs. For the S-REIT universe, the current yield is estimated to be 7.1%, and expected to fall to 6.6% for FY10. We are positive on the hospitality space, as we believe the opening of the two integrated resorts (IRs) in early 2010 will draw in more visitor arrivals and contribute to both stronger occupancy rates and higher room rates. On the other hand, we believe the office REITs will experience negative rental reversions. Our REIT analyst recommends switching from CCT (SELL\Target Price: S$0.73) to CDLHT (BUY\Target Price: S$1.80) or Cambridge (BUY\Target Price: S$0.61)

NEUTRAL on the banking sector
Banks are trading at P/B levels that are close to historical averages. Given the high possibility of a mild economic recovery, we see little scope for share price upside for the three banks on a fundamental perspective. Loan growth is also seen to be mild in the near term, though some pick-up could occur in late 2010 as property loans are drawn down. We are NEUTRAL the sector. Among the three, we prefer UOB as it has been more conservative in its lending over the past three to four years, and this will help to keep its asset quality high. This is particularly important if Singapore were to experience a double-dip in economic growth.

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Investing in the global recovery through ETFs
Barclays Capital has launched a fund that gives investors a chance at participating in the global recovery pie by riding on the wave of fiscal stimulus packages announced in the last year by various governments around the world.

Q&A with Andrew Robinson, FX Strategist at Saxo Capital Markets
With more headlines seemingly reporting of improving manufacturing, export, trade numbers and now some central banks looking to hike interest rates – what is Saxo's view of the outlook for the global economy?

Q&A with Aaron Smith of Superfund Financial Singapore
With more news headlines reporting improving manufacturing, export, trade numbers and with now some central banks looking to hike interest rates, what is Superfund's view of the outlook for the global economy?

Market Outlook by OCBC Research
In the past few days, there were softness and consolidation in the market. We view this favourably as the STI has already gained about 80% from the low in March (vs. 54% for the S&P 500).

DMG: Bearish on Singapore Market
Having risen to 2686, the STI P/B of 1.65x is already back to the 12-year (we use the period commencing Asian Financial Crisis to cover one full cycle) average of 1.61x.

High-end gains traction despite slowdown in overall sales
The pick-up in high-end transactions despite the slowdown in overall sales volumes should benefit high-end developers such as SC Global, Ho Bee, Wheelock Properties and Wing Tai. Maintain OVERWEIGHT. By UOB Kay Hian

Stock Pick
CNA: Buy (DMG, 18 Nov), Kian Ann Engineering: Neutral (DMG, 18 Nov), SPH: Buy (UOB Kay Hian, 17 Nov), Singapore Airlines: Buy (Kim Eng, 17 Nov), Oceanus Group: Buy (OCBC Research, 17 Nov), Swiber Holdings: Hold (OCBC Research, 17 Nov)