Business

STI closes flat in thin trade

Investors cautious over upcoming US presidential inauguration and Brexit woes

The Straits Times Index yesterday traded within a narrow band before ending a nett 0.35 of a point lower at 3,012.77.

Turnover remained depressed at 1.9 billion units worth $773 million, the second consecutive day dollar value was under the industry's estimated breakeven of $1 billion.

Excluding warrants, there were 215 rises versus 212 falls throughout the whole market.

Uppermost among concerns plaguing markets are the US presidential inauguration on Friday and the increasing likelihood that Britain will opt for a hard exit or Brexit from the European Union, instead of a softer, measured withdrawal.

For the US, there has been talk of "buy the election, sell the inauguration" because the incoming administration may not be able to deliver on its campaign promises.

That this may prove to be a worthwhile trading strategy has been borne out by a rise in stocks throughout November and most of December on expectations of a large fiscal stimulus, followed by stagnation in the past three weeks. Although the Nasdaq Composite has continued to gain ground, the rest of Wall Street has remained stuck in a trading range. Adding to the uncertainty was last week's press conference by incoming president Donald Trump, where he did not offer any clues on his economic policy.

Over in the UK, the pound has plunged to its lowest ebb since 1985 after the Prime Minister's office signalled it would not seek a deal that sees the country "half in, half out" of the EU - an arrangement markets had been hoping for as it could cushion the blow to the EU.

Here, banks have been in sharp focus over the past two months, rebounding not just because higher US interest rates could see them enjoy higher earnings but also in line with a rise in oil prices that has eased concerns over loans to the oil and gas (O&G) sector and an announcement by the Government that it will provide financial assistance to O&G companies.

In a Jan 16 report on Singapore banks, Moody's Investors Service said declining asset quality and profitability for DBS, UOB and OCBC contributed to the recent downgrades of their standalone credit assessments to a1 from aa3, but as it expects further headwinds to be manageable, it does not envisage further downgrades over the next 12 to 18 months.

"Problem loans will increase in 2017, but new problem loan formation - primarily from the embattled oil services sector - will slow from the peak levels observed in 2016," said Moody's. "The gradual recovery of oil prices from the troughs seen in early 2016, if sustainable, will lead to a restart of production activities and higher utilisation of oilfield services."

In the second line, shares of civil engineering and construction firm Hock Lian Seng rose $0.035 or 9.2 per cent to $0.415 on volume of 1.8 million units, drawing a query from the Singapore Exchange.

Nomura in a Jan 17 report looked at December's surprise rise in non-oil domestic exports and suggested Singapore is benefiting from the recent strength in electronics demand that has also boosted exports from Taiwan and South Korea.

"However, we remain cautious over the sustainability of the export pick-up; we note that the US semiconductor equipment book-to-bill ratio has fallen to below one," said Nomura.

"Given the host of headwinds and downside risks - both external and domestic - confronting the Singapore economy, we continue to forecast full-year growth of 0.7 per cent in 2017, below the official 1 per cent to 3 per cent forecast range and slowing from 1.8 per cent in 2016."

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