Missile test blamed for banks sell-off

The past week will probably be remembered for the sudden downgrade of the three local banks, the return of geopolitical tensions after North Korea launched a missile over Japan yesterday and weak economic numbers from China.

For the banks, the selling was most probably because of an increasing realisation that US interest rate hikes may have to be delayed because of hurricane damage and subdued inflation in the US.

Players in Singapore had originally been banking on rising US rates feeding through to the local market and thus benefiting bank earnings via widening net interest margins.

These expectations had propelled DBS Bank, United Overseas Bank and OCBC Bank to multi-year highs over the past few months, along the way sending the Straits Times Index to a two-year high not long ago.

Yesterday, selling of the three banks meant the STI finished with an 11.39-point loss at 3,209.56, bringing its fall for the week to 19 points or 0.6 per cent.

DBS ended 29 cents down at $20.06 with 5.3 million traded; UOB dropped 11 cents to $23.05 on volume of 1.9 million; and OCBC lost five cents at $10.95 on turnover of 5.2 million.

Collectively, their losses cut 9.4 points off the STI.

Although the missile test was blamed for the sell-off - the Dow futures fell about 30 points in the morning but recovered most of this by 5pm - bank stocks had already been weakening over the previous four sessions.

Turnover has hovered around the $1 billion every day, poking above this level whenever there was increased trading of the banks and a handful of other index components such as Yangzijiang Shipbuilding, Thai Beverage, Jardine Matheson and Genting Singapore.

The recent escalation of tensions with North Korea has raised the risk premium for markets. Credit Suisse on the Asian market

Yesterday, elevated trading in these counters saw the week's highest dollar value done - two billion units worth $1.7 billion.

Excluding warrants there were 174 rises versus 212 falls.

The relatively quiet trading has meant a lot fewer odd price movements and queries by the Singapore Exchange (SGX).

One exception this week was electronics firm Venture, whose shares surged almost 10 per cent on Wednesday, leading to an SGX query.

The company's reply was essentially that there was no information that should have been disclosed that could account for the rise.

However, after a pullback on Thursday, the stock yesterday resumed its uptrend with an 85 cents or 5.2 per cent rise to $17.05 on volume of 2.6 million.

Second liners in play throughout the week included Rowsley, Alliance Mineral and QT Vascular.

Credit Suisse, in its Investment Monthly Turbulence Ahead in Asia, said Asian markets appear set to deliver 20 per cent earnings growth this year.

"Despite the healthy economic backdrop, we maintain our neutral stance towards Asian equities given rising geopolitical risks.

"The recent escalation of tensions with North Korea has raised the risk premium for markets," said Credit Suisse, adding that it is maintaining its "neutral" view on Asian equities and advising investors to wait for better prices.

"In our Asian equity strategy we remain positive on Malaysia... It offers a hedging opportunity given strong liquidity support from local institutional investors and year-to-date underperformance."

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