Resilient STI bucks China sell-off

The Straits Times Index (STI) yesterday proved resilient when it lost only 3.94 points to close at 2,952.19 in the face of heavy selling in China, where the Shanghai Composite plunged 2.5 per cent after regulators moved to curb insurance companies' stock market activities.

Over in Hong Kong, the Hang Seng Index lost 1.4 per cent, while the Shenzhen Index crashed almost 5 per cent.

Wire reports also attributed the pressure in China to concerns over the country's property market.

Whatever the case, the STI spent virtually the whole session in the red, though at its worst, the index lost only about 19 points before a last-minute push enabled it to close with a minimal loss.

The broader market, excluding warrants, chalked up 197 rises versus 237 falls. Turnover amounted to 2.7 billion units worth $1.25 billion.

The bulk of the index's loss came from falls in DBS and OCBC, though UOB managed a $0.06 rise to $20.96.

On the plus side, a rise in oil prices helped ease the pressure on battered oil and gas stocks. Keppel Corp, in particular, stood out with a $0.35 rise to $6.28 on volume of 18.4 million. This was despite two local houses taking a somewhat less than optimistic view of the company's prospects.

Maybank Kim Eng, in a Dec 9 report, recommended a "sell'' on Keppel, saying that even though only 26 per cent of the latter's nine-month net profit came from the offshore and marine (O&M) sector, Keppel's shares have jumped in tandem with the rise in oil prices, suggesting that the market still views Keppel as an oil-related play.

"If this was the case for the rally, we believe that the stock is set up for disappointments come 1Q17 where we expect: 1) O&M provisions, 2) EPS downgrades and 3) dividend miss. Reiterate SELL and sum-of-the-parts target of $4.57."

OCBC Investment Research, meanwhile, maintained a "hold'' on Keppel with $5.71 fair value.

TOP SPOT

Noble Group occupied top spot in the actives list with a $0.002 rise to $0.172 on volume of 177.6 million, while there was also active trading of QT Vascular and KrisEnergy.

One of the clouds over the global economic outlook is whether incoming US president Donald Trump will live up to his election promise of trade sanctions against China.

Deutsche Bank, in its special report titled The risk of de-globalisation: a US-China trade war?, said headline trade data suggests China accounted for 50 per cent of the US trade deficit last year, which is misleading.

"Around 37 per cent of China's exports to the US consisted of imported parts from other countries. After making proper adjustment for global supply chains, we find that, on a value-added basis, only 16 per cent of US trade deficits in 2015 came from China, slightly higher than 13 per cent from Japan and 11 per cent from Germany," said Deutsche.

"We note a trade war against China would be a war against all participants of the global supply chain, including some US companies."

Meanwhile, although Wall Street has been rallying because of expectations that the Trump administration will stimulate the US economy through fiscal measures, ABN Amro's chief economist Han de Jong in a Dec 9 Global Macro Weekly comment said he is "confused" as to why this is needed.

"When I look at the world economy, I see reasonable growth and signs of strengthening momentum across a wide range of countries," said Mr de Jong. "I also see inflation at very modest levels, below the formal targets of central banks in key economies, but no deflation.

"That is an encouraging picture. And yet, everybody is talking about providing stimulus.''

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