Business

Hawkish Fed brings sellers out

STI suffers largest fall in about three weeks, drops 23.29 points to 2,930.77

THE US Federal Reserve lived up to expectations with a 25 basis points interest rate hike on Wednesday.

But the surprise came in its "dot plot" which suggested three rate hikes next year instead of the two that the market had expected.

As a result, Wall Street fell sharply and yesterday, the Straits Times Index (STI) suffered its largest fall in about three weeks when it dropped 23.29 points to 2,930.77.

Liquidity has been a problem throughout the year and other than month-end window-dressing when volume tended to shoot up past $1.5 billion - on Nov 30 it hit $2.6 billion - value most days came in at around $1 billion. Yesterday, 2.1 billion units worth $1.1 billion were traded and excluding warrants, there were 146 rises versus 315 falls.

All three banks closed weaker, as did Singtel.

The banks have been pushed up over the past fortnight supposedly because higher interest rates suggest better margins.

Singtel fell after Australia's TPG Telecom was named the local market's fourth telco.

DBS Vickers, in its telco roundup yesterday, said M1 and Starhub were fully valued.

"We project StarHub and M1's earnings to contract by 25 per cent & 41 per cent respectively in FY22 versus FY15 due to higher revenue share loss," it said.

StarHub fell $0.09 to $2.81 with about 8 million shares traded, while M1 ended $0.07 down at $1.95 with 3.3 million shares done.

Nineteen of the top 20 most active Reits ended with losses, which is to be expected given worries of higher-than-expected interest rates.

Second line stocks in play included Noble Group, YuuZoo, Ezra and Spackman, most of which ended lower for the day. Thai Beverage, Genting Singapore and Singtel were the most actively traded STI components.

Schroders, in its Outlook 2017: Global Equities, said it expects the global cyclical upswing to run further into 2017, supported by pro-active fiscal policies from the new US president.

"Donald Trump's aggressive infrastructure and tax cutting agenda may yet be watered down in Congress, but we consider it highly likely that much of it will make it through, with material implications for US growth and earnings.

"A US$600 billion (S$864 billion) infrastructure package could add around 0.25 per cent to US growth, while a cut in the corporate tax rate from 35 to 15 per cent could add 10 per cent to US earnings growth for 2018.

"Given that US earnings per share have not grown for three consecutive years, the current momentum in the economy, boosted by the proposed Trump agenda, could deliver double-digit earnings growth in both 2017 and 2018. That would be supportive of further gains in US equities."

Morgan Stanley, in its Dec 12 Big Debates 2017 report, said its strategists have a positive view on China's A-share market, expecting another rally led by EPS (earnings per share) growth and a rotation into equities from property and also recently upgraded their view on China to overweight for the first time in 18 months.

"While investors see higher oil prices being positive for the industry, we believe oil prices in the US$50s support continued margin expansion as gas costs remain low, oil demand steadily expands, and growth capex remains efficient."

It added that contrary to popular opinion, "oil in the US$80s could bring back overspending risks and depress cyclical returns".

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