Business

STI extends its 2017 gain to 2.1%

Index's uptick comes despite Wall Street slide on Monday, slight weakness in the Dow futures, indifferent Hong Kong session

The Straits Times Index (STI) managed to extend its good start to the year with a 16.47-point rise to 3,041.95 yesterday, which brought its gain for the year to 61 points or 2.1 per cent.

Turnover improved from the sub-$1 billion totals of the previous week to 2.3 billion units worth $1.3 billion; and excluding warrants, there were 248 rises versus 178 falls.

The index's uptick came despite a slide on Wall Street on Monday, slight weakness in the Dow futures and an indifferent session in Hong Kong, where the Hang Seng Index ended just 0.2 per cent higher.

Banks have been chiefly responsible for the STI's performance over the past year, and so it was again yesterday, when DBS' $0.32 or 1.7 per cent jump to $18.66 on volume of 9.5 million alone added about seven points to the index.

Apart from the three banks, gains in Singtel, Wilmar International and Hongkong Land also helped the index to a firm finish.

For Singtel, DBS Vickers in its Jan 23 "buy" call on the stock said that the latter's share price suggests over $0.50 per share of value destruction from digital businesses (mainly digital advertising and cyber security) versus DBSV's conservative estimate of a $0.10 value creation.

"We use a sum-of-the-parts valuation for Singtel to derive a target price of $4.46," said the broker.

"The stock offers approximately 18 per cent upside in addition to a FY17 (March year-end) yield of about 5 per cent." Singtel closed $0.02 higher at $3.84 on volume of 31.2 million.

In the second line, shares of real estate firm SingHaiyi Group rose $0.018 or 17 per cent to $0.124 on volume of 18.1 million, drawing a query from the Singapore Exchange (SGX).

SingHaiyi last week announced that it has been given in-principle approval to transfer its trading of its shares from Catalist to the main board.

Morgan Stanley in its Jan 16 Asia/GEMS Strategy "What do early trends in trading in 2017 suggest about the full year?" said that historically, performance trends early in the year have not been good predictors of full-year performance in emerging markets (EMs).

"Regression analysis of the first nine trading days performance versus the full-year performance has a r-squared of less than one per cent for the total of 29 years since the initiation of MSCI EM Index," it said.

"We expect MSCI EM to have flat returns... for the remainder of the year due to headwinds from a strong US dollar, rising US rates and US protectionism offsetting improving global GDP growth environment."

Bank of Singapore's chief economist Richard Jerram, in his "America First... Asia Last" report, said that from Asia's perspective, new US President Donald Trump's emphasis on placing American interests ahead of all others means that Asian free trade and regional security are both at risk.

PROBLEMATIC

"The protectionist focus is particularly problematic because the US economy is already at full employment, so efforts to defend favoured sectors are more likely to raise wages and prices than boost employment," said Mr Jerram.

"In this case, the Federal Reserve will need to ask whether it needs to adjust interest rates faster than the three hikes planned for this year."

DBS's chief investment officer Lim Say Boon, in his Jan 23 report "Policy Clarity to Spur US Equities", said that he believes that the up-move in US equities will resume as the Trump administration provides greater clarity on its plans to boost domestic economic growth.

"That aside, there are also several compelling fundamental factors which will drive US equities higher in coming months.

"For instance, the US economy continues to rebound and this is translating into corporate earnings growth," said Mr Lim.

"Secondly, yield gap analysis also shows that US equities remain cheap relative to bonds."

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

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