Negative views after STI mixed session

The Straits Times Index (STI) rose 23.68 points to 2,943.05 yesterday. Perhaps more importantly, the volume traded amounted to 2.1 billion units worth $1.1 billion - lower than the $1.3 billion post-Trump election rally average.

Last week's average was $1.52 billion, but that was heavily skewed by the abnormal $2.6 billion traded on Nov 30 - the last day of the month when window-dressing and portfolio rebalancing most probably occurred. Yesterday's advance-decline score was a mixed 218-222.

The STI was initially weak in line with falls in regional leaders Japan and Hong Kong, both of which closed in the red.

A 40-point loss in the Dow futures also threatened to send the STI down.

However, by 5pm, it had rebounded to a net rise of 90 points. With Europe opening in the black, the STI climbed off its intraday floor of 2,914.

The early pressure was most likely from the referendum on constitutional reform in Italy over the weekend, with the "no" outcome sending the euro diving and suggesting to some that Italy might eventually vote to leave the European Union (EU).

"Italy wakes up on Monday to the threat of a banking crisis, political turmoil, and a group of anti-establishment populists banging on the doors of government," said BBC News.

"Eurozone beware and EU be warned. Italy is the euro currency's third largest economy and it's in for a bumpy ride."

Here, trading in the banks was slightly firm. All three had rallied sharply since Mr Donald Trump won the US presidential election on Nov 8.

Markets are expecting higher interest rates to add to earnings after the Singapore government said it would provide one-off financial assistance to the troubled oil and gas (O&G) sector and after a rebound in oil prices.

Maybank Kim Eng, however, said the fundamental outlook for banks has not changed.

"October system data further validates our negative view on the sector," said the broker.

"Amid sluggish growth and a rising interest rate environment, we believe default risks could be higher. Our FY17E and FY18E provision estimate for the three banks is 14 per cent to 25 per cent and 8 per cent to 20 per cent higher than consensus."

Its target for DBS is $15.68, and it said it prefers UOB because of the latter's lower exposure to the O&G sector and to China.

"UOB appears to be more conservative and best cushioned to absorb further losses from asset quality deterioration," it said.

The FTSE ST Financial Index ended up 6.30 points.

Other blue chips that contributed to the index's rise included GLP, Hongkong Land and Wilmar International.

PREMATURE

Schroders, in its December Talking Point, said it would be premature to draw firm conclusions about US economic policy without concrete developments, but said the US dollar will be crucial.

"The key variable for us is the US dollar, which tends to drive equity returns," said Schroders' global emerging market equity fund manager and strategist Nicholas Field.

"Although the initial reaction to the election has been to see some strengthening in the dollar, we do not know whether that is going to continue, and that will depend very much on what policy mix actually comes out next year. That remains very uncertain."

Deutsche Bank, in its Dec 1 Asia Economics Monthly Adapting To Insularity, took projections that the local economy will expand by 1 per cent to 3 per cent for another three years to imply that Singapore is stuck in a low-growth environment where domestic productivity and inflationary pressures are weak.

"Add the threat of de-globalisation from a Trump presidency... Singapore's economic outlook is marked with downside risks," it said.

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