Spotlight on pennies as STI drops

Penny stocks took centrestage as a 60-point slide in the Dow futures yesterday took the wind out of the sails of the local stock market, knocking back the Straits Times Index (STI) by 23.41 points at 3,044.08.

Traders said it looked like the Trump reflation play may have run its course, and could be replaced by worries over the impact a protectionist America would have on global trade and growth.

"With blue chips under pressure, punters are looking to play the pennies," said a dealer.

Turnover amounted to 2.5 billion units worth $1.1 billion, about in line with recent elevated averages.

Excluding warrants there were 198 rises versus 220 falls. The average value per unit traded was $0.44 and 16 of the 20 top actives ended firmer.

Not surprisingly, banks led the index lower, while weakness in Singtel and the Jardine stable also contributed.

For banks, Maybank Kim Eng in a Feb 1 report, A Challenging Year, said that while loans grew in December for the first time last year, it was partly due to the low base in December 2015.

"Asset quality continued to worsen, as the percentage of exposures classified in the doubtful and loss categories are now at their highest level since 4Q09.

"Maintain Negative sector view," said the broker.

In the second line, shares of water treatment firm Moya Asia rose $0.002 to $0.064 on volume of 20.8 million after a trading halt, during which the company said it is considering a potential acquisition of a company which is in a similar business.

Nomura in its latest Asia Strategy note said that after the region's gains these past few weeks, risk-reward is beginning to look more unfavourable now.

It has changed its recommendation for Asia ex-Japan from "cautious" to "neutral", as it expects up to 10 per cent downside in the coming months.

"MSCI Asia ex-Japan has rarely traded above its current 12.8x forward P/E on a sustained basis in the past six years. Substantial threats to risk-appetite loom ahead," it said.

In assessing the latest US Federal Reserve decision to leave interest rates unchanged, ABN Amro said it expects three hikes this year, mainly in response to the impact that stimulus policies would have on inflation given the already tight labour market.

"Expectations on the progress of discussions between US President Donald Trump and the Republican Party around the tax reform, which includes a significant tax cut, remain positive," said ABN Amro.

TAX REFORM

"Although there is still doubt on how the tax reform will be implemented, our base scenario incorporates a significant tax overhaul, which would boost economic activity later in the year."

BlackRock's chief investment officer for global fixed income, Mr Rick Rieder, in his Feb 2 update said the market has under-appreciated the probability of the Fed Reserve moving in March.

"The Fed is very close to achieving both its mandated goals, and the reflationary environment that has taken hold in the economy is likely to result in a moderately faster pace of rate normalization, in our view," said Mr Rieder.

"If the Fed does move in March, we could see as many as four hikes in 2017, and as long as data remains supportive, very likely three hikes."

However, Rabobank Financial Markets Research in its Feb 2 Happy Days note said it is sceptical of the consensus view that the Fed will raise rates three times this year, and forecasts only one - in December.

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