Business

STI down just 1 point for the week

Impact from better-than-expected industrial production and Fed chair's comments was short-lived, but window-dressing helped

Three forces acted upon the local stock market this week, and none involved North Korea.

In chronological order, they were the news that last month's industrial production jumped 19 per cent year-on-year; US Federal Reserve chair Janet Yellen's speech in Cleveland, which the market took to mean that a December interest rate hike is back on the table; and the Trump administration's tax proposals, which the US market hopes will boost profits and the economy, even if there is a long way to go before they are passed.

Last month's factory output numbers sent economists scrambling to reassess their estimates of full-year growth, while Ms Yellen's comments about the need for the Fed to stick to its hiking path sent traders scrambling to reassess their belief that there might not be a December hike.

In the federal funds futures market, the implied probability of the Fed acting in December is now 67 per cent, up from about 40 per cent a fortnight ago.

Given that higher rates have been taken to mean higher bank earnings, the impact here was immediate, with large gains in the three banks pushing the Straits Times Index (STI) up 24 points on Wednesday.

The push proved to be short-lived though, with prices drifting backwards thereafter. Also short-lived was any boost from the industrial numbers.

Yesterday, softness in the banks left the STI 7.23 points weaker at 3,219.91, although month-ending window-dressing took the index off its intraday low of 3,200. For the week, the index lost just one point.

Among the stocks that stood out during the week was Jardine group's Mandarin Oriental, which announced that a planned sale of its Excelsior hotel in Hong Kong had been called off because the bids the company received were not suitable.

Mandarin Oriental's shares crashed 28 per cent on Wednesday to US$2.01 (S2.73) in response, although they ended the week at US$2.18.

Yesterday, softness in the banks left the Straits Times Index 7.23 points weaker at 3,219.91, although month-ending window-dressing took the index off its intraday low of 3,200.

Land transport firm ComfortDelGro's shares have come under pressure in recent weeks, partly because of earnings concerns following the entry of competitors Uber and Grab.

But some analysts believe the selling to have been overdone; on Thursday, the stock managed a modest rebound, followed by a $0.04 rise yesterday to $2.08 with 27 million done.

Maybank Kim Eng yesterday said it thinks ComfortDelGro's 12-month stock correction of 28 per cent has priced in its taxi downside.

"Upgrade to 'buy' from 'hold' with catalysts expected from: 1) its potential tie-up with Uber, which could reverse its taxi performance; 2) the opening of Downtown Line 3 next month, which could boost rail ridership; 3) steady bus earnings and FX normalisation," it said, adding that it has raised ComfortDelGro's target price to $2.40.

DBS' chief investment officer Hou Wey Fook said he does not think the bear market beckons despite high prices as the fundamental backdrop remains positive and liquidity abounds.

"Within the equity asset class, we favour Asia and emerging markets over developed markets," he said.

"We believe the former's recent outperformance has a lot further to run, hence we recommend Overweight on Asia."

"An Asian dividend-focused stock portfolio such as real estate investment trusts (Reits) is a good strategy from a risk-return trade-off."

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

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