Business

STI up 15 points, boosted by banks and GLP

Gains in the three local banks accounted for 12-point rise in STI even as concerns remain over their exposure to O&G sector

US banks rose last Friday and their local counterparts followed in their footsteps yesterday, helping to push the Straits Times Index up 14.97 points to 3,056.91 after it had dropped 26 points last week, on Thursday and Friday.

Also contributing to the rise was a S$0.12 or 4.6 per cent rise in Global Logistic Properties (GLP) to S$2.74 on volume of 50 million that accounted for four points. Gains in the three banks accounted for another 12 points.

Turnover amounted to 2.7 billion units worth S$1.24 billion, in line with the daily averages of the past month. Excluding warrants, there were 278 rises versus 147 falls.

Wall Street's Friday jump that was largely bank-driven came after US President Donald Trump announced his intention to review the Dodd-Frank Act that was passed after 2008's sub-prime crisis and was aimed at reining in speculative bank activities.

For local banks, there have been concerns over their exposure to the oil and gas (O&G) industry, lately because of O&G company Ezra's financial problems.

Ezra resumed trading after a halt last week during which it announced a probable US$170 million write-down. Its shares ended S$0.018 or 37.5 per cent weaker at S$0.03 on volume of 268 million.

As for the banks, Macquarie Warrants in its daily newsletter said January saw Singapore banks DBS (up 9.4 per cent) and OCBC (up 5.9 per cent) outperforming the overall STI (up 5.8 per cent), while UOB underperformed with a mere 2.6 per cent gain.

"Notably, DBS is the stellar performer; from November last year through January this year, it rallied a staggering 26.6 per cent versus the STI's 8.3 per cent increase during the same period," said MW, adding that Macquarie Equities Research (MQ) thinks the banks are inexpensive notwithstanding asset quality concerns.

"MQ designed a proprietary new framework that shows credit cost concerns to be overblown. MQ's analysis suggests that banks remain inexpensive at 1.0x price-to-book value versus five-year average of 1.21x," said MW.

"MQ thinks positive surprises to street estimates of loan loss provisions will drive further re-rating for the banks. MQ has outperform ratings on DBS (12-month target S$21.50) and OCBC (target S$10) and is neutral on UOB (target S$20.50)." The FTSE Straits Times Financials Index rose 1 per cent to 831.23.

In the telco sector, StarHub took a hit, down S$0.20 or 6.7 per cent to S$2.80 on volume of 20.7 million.

In a Feb 3 report, Daiwa downgraded StarHub from "underperform" to "sell" because the latter's Q4 earnings were disappointing and because of the company's guidance for this year, which Daiwa described as "ominous" as it implies a sharp deterioration in profitability. Its target for the stock is now S$2.31 from S$2.56 previously.

In its Asia round-up, looking for downside in Asian equities, Nomura said it downgraded its tactical stance on Asia ex-Japan equities from "neutral" to "cautious" last week.

"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. The earnings upgrades that spurred the market re-rating last year have begun to fade," said Nomura.

"Perhaps the most prominent risk currently is President Donald Trump. We have argued since election day that Mr Trump's policies (while possibly positive for the US at least for some time) are most likely negative for emerging markets and Asia, given their 'America First' approach and, if anything, it looks more and more the case that Mr Trump intends to follow through on his campaign positions."

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