Business

STI drops in response to Dow futures plunge

Index hits intraday high of 3,022 before falling to 2,993

The last time the Straits Times Index (STI) crossed 3,000 in early November 2015, it stayed there for three days.

This time, the stay lasted one day less - yesterday, the STI endured a second consecutive loss, this time by 7.94 points at 2,993.

This was most probably in response to a plunge in the Dow futures ahead of an expected weak Thursday for a Wall Street that was said to be disappointed with US President-elect Donald Trump's press conference.

Earlier yesterday, gains in Global Logistic Properties (GLP), which is in talks to be sold, DBS and UOB helped push the STI to an intraday high of 3,022 before it was swept under by afternoon selling. Turnover excluding warrants amounted to 1.7 billion units worth $1.2 billion.

On the possible sale of GLP, OCBC Investment Research noted that the stock has risen to a two-year high, but highlighted that GLP has emphasised that there is no assurance any transaction will materialise from its strategic review.

"That said, despite the recent run-up, we continue to see long-term fundamental value in GLP's shares near current prices, which are trading near a still-undemanding 1.0x book value," said the broker.

Nomura said it is turning positive on the Asean palm oil sector this year due to recovery in both CPO (crude palm oil) price and production following the end of the El Nino situation.

"CPO price has risen by 17 per cent q-q in 4Q16 due to lower production and weakening of MYR (Malaysian ringgit) and IDR (Indonesian rupiah) against USD (US dollar)," said Nomura.

It has raised its target prices for First Resources and Golden Agri Resources (GAR) to $2.50 and $0.42 respectively. GAR ended $0.005 lower at $0.425 while First Resources rose $0.005 to $1.925.

FISCAL STIMULUS

In its morning comments, CMC Markets noted that the US dollar weakened overnight and attributed this to what Mr Trump did not mention at his press conference, namely fiscal stimulus.

"The US dollar rally was based on the assumption that Trump's administration will push through a massive infrastructure building and fiscal stimulus package, which will lead to higher inflation in the future," said CMC analyst Margaret Yang.

"Rising inflation and treasury yields will then force the Federal Reserve to consider a faster pace of rate hikes to counterbalance that effect. The slump in the US dollar index on Wednesday indicated that assumption is now unwinding because the president-elect never even mentioned that key word 'stimulus', which the market has been widely anticipating."

Pioneer Investment Management senior economist Andrea Brasili, in a Jan 11 commentary, said he believes the current expansion phase in the US may continue, but unresolved issues remain in the long run.

"In fact, despite the very long growth cycle, we believe that expansion can last as signalled by the mid-cycle situation of the housing market and limited leverage of private operators," he said.

"President-elect Donald Trump's expected fiscal policy is likely to boost the economy in the short run, especially via corporate tax cuts, but the long-run impact might be harmful. There is a need to address long-term flaws, notably weak investment and productivity, and it is not clear if Trump's policies will help in this regard.

"However, the positive impact of fiscal expansion is likely to be limited because the economy is already at full employment and the risk of overheating could increase the odds of a hawkish Fed in 2017."

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