STI drifts amid falls in HK, Dow futures
Trading mostly directionless as players await outcome of FOMC meeting
Trading was mostly direction-less yesterday as the market here waited for today's completion of the two-day US Federal Open Market Committee (FOMC) meeting.
With Hong Kong's Hang Seng Index and the Dow futures both spending all of the session below water, the Straits Times Index drifted to a loss of 3.75 points at 3,143.40.
Turnover amounted to 2.07 billion units worth $1.2 billion and excluding warrants, there were 187 rises versus 291 falls.
Most of the support for the index came from gains in the three banks and Jardine Matheson. On the downside, falls in property stocks CapitaLand, City Developments and Keppel Corp provided the greatest drag.
Brokers described the session as quiet as most players were waiting for further cues from the FOMC and Wall Street.
The federal funds futures market is presently pricing in a 100 per cent chance of a rate hike this week.
Activity in property stocks which surged at the end of last week after the government announced tweaks to its cooling measures has since tapered off.
Phillip Capital in a March 13 report said the measures are unlikely to significantly boost sales in private housing units and reiterated an earlier view that the two most binding property cooling measures are the 60 per cent TDSR (total debt servicing ratio) framework and ABSD (additional buyer's stamp duty).
"It is only through the easing of these two property cooling measures could there be a meaningful boost in take-up rates," said Phillip.
ISR Capital was the day's most active stock, ending $0.003 higher at $0.027 with 101.5 million done. The company has been in the spotlight recently following a Trade with Caution warning issued by the Singapore Exchange (SGX).
OANDA senior market analyst Jeffrey Halley said although a Fed hike seems to be fully priced in, he believes that the market is still underpricing the potential pace of hikes this year.
"An adjustment higher of the 'dot plots' could see gold come under renewed pressure. The going should be slow to the downside though, as geo-political tensions in Europe, most especially (today's) Dutch election, mean there will be safe-haven buyers on any dips," wrote Mr Halley.
Bank of Singapore's investment strategist James Cheo, in his March 13 "Preparing for Fed's hike", said he was forecasting three interest rate hikes this year, including one this week.
"We maintain our moderately defensive asset allocation stance, preferring credit over equity," said Mr Cheo.
"Ahead of the Fed hike, we keep our cautious stance on equities as current US equity valuations of 17.8 times looks elevated and higher than the 16.1 times and 14.7 times in previous Fed tightening cycle of 2004 and 1994, respectively.
"Therefore, we expect some short-term market pullback and a rise in volatility given the current stretched equity valuations."
SGX's investor education portal, My Gateway, noted that the probability of a US rate hike this week is almost 100 per cent.
"Cyclical sectors typically have strongest positive correlations to a rising interest rate environment. Singapore banks have generated an average total return of 17.8 per cent (vs STI's 12.2 per cent) since Nov 8, 2016, on the back of strong institutional investors buying activity," said My Gateway.
"Defensive sectors such as Reits are also sensitive to interest rates. The S-Reit Sector currently offers a yield spread of about 430 basis points, higher than the long-term average of about 340 basis points, which may imply that investors have largely factored in potential rate hikes this year."
This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts