Business

OCBC profit fall sparks bank selloff

STI falls 1.3%, its biggest single-day drop this year; rotational playing of penny stocks continues

US President Donald Trump's promise of a "phenomenal" tax plan may have driven Wall Street to new highs on Monday."

But in Singapore, a bank selloff yesterday after OCBC reported its latest results, led to a 39.16 points or 1.3 per cent loss for the Straits Times Index at 3,072.47 - its biggest single-day drop of the year.

Volume was above average at 3.3 billion units worth $1.47 billion, with continued rotational playing of penny stocks providing a significant outlet for the market's speculative energies. The advance-decline score excluding warrants was 176-310.

OCBC yesterday reported an 18 per cent drop in net profit to $789 million for the fourth quarter ended Dec 31, 2016, and an 11 per cent fall in full-year net profit to $3.47 billion.

The counter finished trading $0.32 or 3.3 per cent lower at $9.43 on volume of 11.1 million, dragging with it the two other banks. The combined drag of falls in the three banks on the STI was about 30 points, with UOB proving the most resilient with a $0.33 or 1.6 per cent loss at $20.74.

DBS is due to announce its earnings tomorrow and UOB on Friday.

Despite the index's plunge and a generally weak session all round, dealers described recent trading conditions as being much better than in 2015 and last year.

"No complaints, although retail presence is minimal," said a dealer. "It's best to make hay while the sun shines because volume can disappear as quickly as it appears."

Noble Group assumed top spot in the actives list, rising $0.023 or 11.7 per cent to $0.22 on volume of 526 million, after Reuters reported on Monday that China's state-owned Sinochem was in talks to buy a stake in the company.

Noble responded with a statement that it was in discussions with regard to a possible strategic investment. No agreement had been reached yet.

DISRUPTIVE

Bank of Singapore's chief economist Richard Jerram, in his Feb 14 report Trump's First 100 Days, said tax reform is hugely complex and potentially very disruptive to corporate structures if it involves a border adjustment tax.

"Aggressive lobbying and potential hostility from Republican deficit hawks further complicate any deal," said Mr Jerram. "We are sceptical that Trump has a 'phenomenal' plan, but it should be possible to produce a synthesis of the various proposals being discussed.

"In the United States, it is hard for central government to have much impact on infrastructure investment. The promised US$1 trillion of investment looks like as much of a fantasy as the promised 25 million new jobs."

MFS Investment Management's chief investment strategist James Swanson, in his Feb 8 report Leaning Against The Wind, said changes in presidential administrations have never extended or accelerated an ageing business cycle.

"As the current expansion nears its eighth birthday, it's important to note that the average business cycle lasts five years and the longest cycle in history lasted 10," said Mr Swanson.

He added that these warning signs are now evident - decaying profit margins and profit share of GDP, a marked increase in mergers and acquisitions, a rise in interest rates, a strong US dollar, a "story" that justifies extending the market's advance despite deteriorating fundamentals, a lack of private sector investment and a significant increase in corporate and consumer credit.

"Entering the market at today's S&P 500 price/earnings multiple of 21 times previous 12-month earnings gives investors little cushion should the present market ebullience fade, especially when one considers that the 40-year average P/E multiple is closer to 16 times."

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

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