UNTIL there is evidence that government measures worldwide are beginning to take effect, stock markets are likely to remain in the doldrums.
'It's difficult to predict, because people are still waiting for the US and European banks to stabilise,' said Westcomb Securities research head Goh Mou Lih.
Bank shares were sold off across the United States, European and the Singapore markets last Friday.
Investors became unsettled by news that the US government and private investors will convert their preferred stock in Citigroup into common shares.
The conversion will give the US government a 36 per cent stake in the beleaguered bank and lead to a dilution for other shareholders.
This fanned concerns that Citi will not be the last bank in which the US government will take a large stake.
'Unless the banking sector stabilises, the local market will hover near the 1,600 level. More investors are staying on the sidelines, and everybody is waiting for further news and developments,' said Mr Goh.
On Wall Street last week, the Dow Jones Industrial Average fell for a sixth straight month to hit the lowest level since May 1997, while Standard & Poor's 500 Index slumped to its lowest since December 1996.
Despite the market drifting lower, analysts are not expecting any sudden massive sell-offs reminiscent of what happened last October. For that to happen, they say, it would require a huge trigger, such as another big bank collapsing.
The benchmark Straits Times Index (STI) finished at its lowest since September 2003 last Friday, closing out a grim month during which it lost another 8.68 per cent.
This is its worst monthly loss since October last year when it lost 23.94 per cent.
February also saw other Asian countries' export-driven economies sink deeper into recession after reporting sharp contractions in exports and production.
With the local economy predicted to contract by more than 5 per cent this year and the unemployment rate expected to double to 5 per cent, battered down local stocks are not likely to recover any time soon.
Said a remisier: 'It is still too early to be optimistic. The market doesn't have much further down to go, but we are not expecting any sustainable recovery either.'
CLSA expects corporate profits to fall 36 per cent this year. Banks and property firms, which are heavyweights on the STI, are expected to be hit hard.
Combined corporate profits for last year fell 28.5 per cent to $23.4 billion, down from $32.7 billion in 2007, ending seven years of continuous profit growth for corporate Singapore.
Second-line indices also suffered their worst declines since the global stock market rout in October last year.
The FTSE ST China Index tumbled 16.09 per cent last month, adding to January's 3.13 per cent decline.
Sentiments for S-chips are likely to be worsened by China-based fibre-maker FibreChem Technologies, which ran into accounting troubles last week leading to a suspension in trading.
'We believe this incident will continue to exert some downward pressure on S-chips in the near term,' said DBS Vickers in a report.
The FTSE ST Mid Cap Index lost 9.67 per cent, while the FTSE ST Small Cap Index was down 9.73 per cent.
