Business

STI drifts lower, but still up 5.5% for 2017

Trading volume is at 1.9 billion units worth S$1.33 billion, above last week's S$1.1 billion daily average

A 60-point rise in the Dow futures yesterday that suggested a firm session ahead for Wall Street failed to inspire the Straits Times Index to push on to a fresh 15-month high.

But the index's eventual 2.01-point loss at 3,039.94 was considered mild by any standard, given that it is still up by 159 points or 5.5 per cent for 2017.

Volume in recent days has improved and yesterday amounted to 1.9 billion units worth S$1.33 billion, better than last week's S$1.1 billion daily average.

The advance-decline score excluding warrants was a close 226 to 220.

Brokers said the index's good run since the turn of the year meant that corrections of some form could be reasonably expected.

"Markets are still focused on the Trump reflation play despite the threat of a trade war with China," said a broker.

Commodities firm Noble Group occupied its familiar spot at the top of the actives list, ending S$0.001 weaker at S$0.172 on volume of 175 million. Other second liners that enjoyed large volume included LionGold, Magnus Energy and SunMoon Food.

Markets are still focused on the Trump reflation play despite the threat of a trade war with China.
a broker

Among blue chips, banks have shone particularly brightly these past few months, particularly DBS, which ended S$0.19 or just over one per cent higher at a new 17-month high of S$18.85 on volume of 10.1 million.

The value of trades in DBS was S$191.3 million, about 14 per cent of the whole market.

Yesterday, UOB rose a relatively modest S$0.03 to S$20.99 on volume of 2.4 million. RHB said it is raising UOB's target price from S$18.90 to S$22.90 as it cuts UOB's 2017 loan loss provisioning (LLP) and raises its long-term return on equity assumption to 10.1 per cent.

"We believe (UOB's) 4Q16's asset quality deterioration was at a controlled pace, which should keep credit costs within management's guidance. UOB has the highest LLC amongst peers, which provides scope for a write-back of general provisions in 2017," said the broker.

"The bank ought to record wider NIMs (net interest margins) from the SIBOR's (Singapore Interbank Offer Rate) rise. Its share price has also underperformed DBS by 10ppts over the past four months. We upgrade to Buy (from Neutral)."

Goldman Sachs in its Global Fixed Income Outlook for Q1 said that for China, it sees risks from unsustainable debt growth and uncertainty ahead of the leadership transition.

"We expect growth to slow to 6.3 per cent in 2017 from 6.7 per cent last year, due to moderation in the property market, a weaker outlook for exports and the expiry of the tax cut on auto purchases," said the bank.

"Consumption has stabilised, but at lower levels. We believe that policymakers are prepared to act swiftly to support growth and preserve stability ahead of the November leadership transition, but their reliance on credit expansion could exacerbate existing problems ...

"Though China is the political focus of (Donald) Trump's criticism, we don't anticipate much impact on China's economy from a moderate escalation in trade disputes, as it is self-funding, relatively closed and politically stable."

Nomura in its China Equity Strategy comment said it went on a four-day marketing trip to mainland China last week to ask how long the global reflation trade can continue.

"It appears that offshore investors think China's growth should hold up in a year with an important Party Congress, and onshore investors believe US growth will accelerate with the Trump presidency," said Nomura.

"But our analysts' bottom-up based assessments are not in favour of this trade at this time, a message for which we found a receptive audience."

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