Banks, US rally help STI rise 1.3% this week

A firm week for the Straits Times Index (STI) ended yesterday with a mixed session that saw the index lose 2.73 points - a loss that limited the gain over the five days to 37 points or 1.3 per cent at 2,956.13 - and the broad market record 203 rises versus 203 falls.

Banks were the main driving force, based on the thinking that higher interest rates mean wider margins. Also playing a part was the Government's declaration that it will provide financial support for the battered oil and gas (O&G) sector, which banks are heavily exposed to.

Providing the backdrop was Wall Street, where the reflationary, Trump-driven rally continued despite no clear indications of what the new administration intends to do, and despite the futures market pricing in a 100 per cent chance of a rate hike at next week's Fed meeting.

Also influencing trading was the Italian referendum on constitutional reform and the European Central Bank meeting on Thursday, where it was announced that bond purchases are to continue until December 2017, but the pace will slow from April onwards from 80 billion euros ($120 billion) per month to 60 billion euros.

The Italian outcome was an emphatic "no" that led to the resignation of the incumbent Prime Minister. It led to speculation that it could be the start of a process that ends with Italy exiting the European Union.

Meanwhile, heavy trading of the three banks here meant that daily volume regularly crossed $1 billion - yesterday, business done was 1.8 billion units worth $1.1 billion. The highest total for the week was recorded on Thursday, when $1.4 billion changed hands.

O&G stocks yesterday enjoyed a minor lift as oil prices on Thursday rebounded to close above US$50 ($71.40) per barrel. But gains in the sector were not widespread.

Noble Group regularly topped the daily actives list while Genting Singapore and Thai Beverage were the STI's most actively traded components.

In Nomura's Asia 2017 Outlook, Sailing into the Storm, the broker said it cut its gross domestic product (GDP) growth forecast for Singapore for next year to 0.7 per cent from 1 per cent. It is well below the official 2017 growth forecast range of 1 per cent to 3 per cent and below the 1.1 per cent this year.

'MOST EXPOSED"

"We find it hard to share the Government's optimism on the growth outlook as Singapore's ultra-open economy and financial centre will likely be one of the most exposed in Asia to the UK leaving the European Union, the threat of trade protectionism from the US and political risks in Europe," said Nomura.

It said Asia ex-Japan's economies would usually be expected to receive a big boost from the sustained drop in oil prices and interest rates, yet they have not with aggregate GDP growth stuck at around 6 per cent for the last five years.

Nomura offered four reasons for this: stagnant exports, demographics (rapidly ageing populations and falling birth rates), an oversized financial cycle (high debt levels) and weak total factor productivity.

"The culprit is partly myopic governments, but we would also blame persistently cheap credit leading to the misallocation of capital (for example, into property), which has kept zombie companies afloat and reduced the pressure for efficiency-enhancing reforms," it said.

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts