Business

STI dips despite Dow surge

Natixis strategist sees negative surprises and increased volatility for the rest of the year

The Straits Times Index spent most of yesterday drifting with a slight upward bias as it tracked gains in the Dow futures.

But at 5pm it finished with a net loss of 3.02 points at 3,223.46, despite a 60-point rise in the Dow futures that showed a firm opening to the week for Wall Street.

The broad market excluding warrants recorded a marginally firm advance-decline score of 212-197, though turnover, which had spiked last Friday to $1.26 billion, dropped back to 1.2 billion units worth $845.3 million.

Last Friday's volume jump was probably thanks to quarter-ending window-dressing.

In Hong Kong, the Hang Seng Index rose by only a modest 0.08 per cent, possibly a factor that capped gains here.

Among the top actives was Global Logistics Properties (GLP), which yesterday said in its update on its strategic review that it had last Friday received "firm proposals from shortlisted bidders" for final evaluation.

NON-BINDING

"All of the proposals received are non-binding and are subject to regulatory approvals and other conditions," said GLP, adding that there is no certainty of any deal being struck.

It ended $0.01 lower at $2.85 with 10.9 million units traded.

In the food and beverage sector, shares of Thai Beverage ended unchanged at $0.90 with 6.9 million traded.

RHB in its report "Everything Seems Better After a Little More Beer" said that based on the latest statistics released by the Bank of Thailand, beer sales volume there has increased 5 per cent year on year in April and 10 per cent in May.

"We think this is a signal that beer consumption pattern in Thailand has normalised post-Songkran festival and the mourning effects on beer sales are behind us," said the broker.

"We expect the recovery to continue. Reiterate 'buy' on ThaiBev with a sum-of-the-parts derived target price of $1.10."

In the real estate investment trusts (Reits) sector, Suntec Reit dropped $0.015 to $1.855 on volume of 5.7 million. Last Friday, Moody's downgraded Suntec Reit's rating from Baa2 to Baa3.

DOWNGRADE

"The ratings downgrade to Baa3 with a stable outlook reflects our view that Suntec Reit's weakened financial profile will not materially improve over the next 18 to 24 months," Mr Saranga Ranasinghe, a Moody's assistant vice-president and analyst, said in a news release.

Natixis Global Asset Management chief market strategist David Lafferty, in his mid-year outlook, "Supportive fundamentals, inflated valuations", said the investment environment today was characterised by two countervailing forces: improving fundamentals offset by high valuations, a combination that is prompting investor apathy and low volatility.

"Periods of abnormally low volatility cannot persist forever. While we see little evidence of systemic risks in the global economy, we expect the remainder of 2017 will offer negative surprises and increased volatility," said Mr Lafferty.

"These could include a Trump tax disappointment, a US debt-ceiling debacle, new evidence of slowing growth in China, or geopolitical missteps in the Middle East or North Korea."

Bank of Singapore investment strategist James Cheo in a report last Friday, "US banks de-stressing after stress test", said recent news that all 34 of the biggest US banks have sufficient capital buffers to absorb losses reinforces its positive view of the financial sector.

"We think the markets are underpricing inflation and the Fed's hiking cycle.

"If inflation expectations were to increase and the Fed were to raise rates according to its plans, the financial sector could benefit," said Mr Cheo.

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