Business

DBS pullback leaves STI weaker

DBS cuts 8.7 points off index as it falls $0.38, trading ex-dividend at $20.45; OCBC dips but UOB ends firmer

The three banks had virtually driven the Straits Times Index up about 62 points or 2 per cent on Tuesday and Wednesday, so it comes as no surprise that two of them eased yesterday. DBS's pullback as it went ex-dividend was largely responsible for a 9.19-point drop to 3,228,62.

DBS's $0.38 fall to $20.45 on volume of 5.9 million cut 8.7 points off the index. OCBC dipped two cents to $10.16, while UOB managed to gain six cents at $23.30 after an intraday low of $23.05.

Hectic trading of the banks - largely based on expectations that the worst is over for them - has helped shore up dollar volume, although there are signs that this is slipping back.

Turnover yesterday was 2.2 billion units worth $1.25 billion, down from Wednesday's $1.2 billion. Excluding warrants, there were 252 rises versus 229 falls, so trading was more mixed than weak.

OCBC Investment Research said that with the improving business outlook, it has raised its FY17 earnings estimates for DBS to $4.674 billion.

"Together with the recent re-rating, we have also upped our valuation metric, raising our fair value estimate from $18.99 to $19.97. DBS has done well, up 12 per cent YTD. At current price, we maintain our Hold rating."

Among the actives was casino and resort operator Genting Singapore which traded ex-dividend.

The stock ended $0.025 weaker at $1.085 on volume of 21.6 million. Maybank Kim Eng maintained a Buy on Genting, saying that while the latter may have ceded market share in the first quarter this year, the broker believes this will be regained in the second quarter.

"Genting will report 1Q17 results on 12 May 2017... Factoring in higher VIP volume and lower VIP rebate rates, we lift our Ebitda (earnings before interest, tax, depreciation and amortisation) by 14-16 per cent and our target price by 14 per cent to $1.25. This remains based on 12x FY17E EV/Ebitda (enterprise value/Ebitda) its eight-year mean...

"Maintain Buy with catalysts expected from a potential Japanese casino licence."

While many have suggested that recent data softness, such as the 0.7 per cent initial report on first-quarter US GDP, could slow down the Fed's actions, Mr Rick Rieder, chief investment officer of global fixed income at BlackRock, thinks that the FOMC will be unwavering in its path towards at least two more hikes this year, and Wednesday's statement reflects this.

"We think that recent Fed discussions have moved towards a focus on financial conditions, which ironically have actually eased since the Fed raised policy rates in March," said Mr Rieder, adding that markets are being excessively pessimistic in recently discounting the probability of a decent pace to US rate normalisation, particularly as seen from the standpoint of a global central bank backdrop that remains remarkably accommodative.

"The fact is that global liquidity and financial conditions remain very accommodative," said Mr Rieder.

Bank of America Merrill Lynch said in its May 3 "Fed: no need to worry about recent weaker data" report that, at this point, it seems that the consensus on the FOMC is to look past some of the recent weak data, which includes 1Q GDP, March CPI and payrolls.

"We suspect that Fed officials will be particularly keen to see the April data - all eyes will be on Friday's employment report and next Friday's CPI and retail sales reports.

"Strong readings on these indicators will likely leave the Fed feeling more comfortable with delivering a hike at the June meeting."

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