STI falls for third day, clings to 3,000
Singapore banks drag index, Singtel and Hongkong Land also down
Selling of shares in the three banks - DBS, UOB and OCBC Bank - yesterday helped drag the Straits Times Index to its third consecutive loss, down 12.55 points to 3,000.22.
Turnover amounted to 1.6 billion units worth $1.1 billion, the dollar value elevated by volume done in the banks which was $224.6 million, or 20.3 per cent of the total.
Excluding warrants, there were 241 rises versus 197 falls so the session was more mixed than the index's reading would indicate.
The weakness came despite a 20-point rise in the Dow futures which suggested a firm Wednesday for Wall Street, as well as a 1.1 per cent rise in the Hang Seng Index.
These gains, as well as those for the UK pound, came after British Prime Minister Theresa May on Tuesday outlined her plan for her country's withdrawal from Europe that was seen as being slightly more constructive than feared.
In three days, the STI has lost about 25 points, or 0.8 per cent, though it is still up 4.2 per cent for the year so far.
Other than the banks, large index losers yesterday included Singtel and Hongkong Land, the latter losing US$0.15 at US$6.80 with 1.6 million traded.
In the second line, shares of civil engineers Hock Lian Seng dropped $0.01 to $0.405 on volume of 225,200. The company on Tuesday had been queried by the Singapore Exchange over reasons for the unusual volume of 1.8 million done in its shares that day which saw its price rise $0.035 to $0.415. The company on Tuesday replied in the negative.
On Brexit, Ms May said that although the UK wants to leave the single market, she said the government wanted a "bold and ambitious" trade agreement with the EU which would seek the freest possible trade, while still allowing controls on immigration.
Also, the UK wants a customs arrangement with the EU, but not one that prevents it from striking its own trade deals, and is looking for a "phased process of implementation" of the Brexit deal. On top of all this, the UK parliament would vote on the final deal.
Meanwhile, the Investment Management Association of Singapore, in a press release yesterday, said in its annual survey that 64.91 per cent of 57 fund managers who participated regarded political uncertainty in Europe as one of their top three concerns this year; another 45.61 per cent saw weakening emerging markets as a major issue, while 42.11 per cent named rising tensions in voter sentiments and the impact on trade as another key risk.
"Slowing growth in China ranked fourth in the list of macro concerns at 40.35 per cent compared to the 85.1 per cent which cited China concerns in 2016,'' it said.
In its 2017 Outlook for US Equities, Schroders said it is constructive on the outlook given stable US economic growth predicated on sustained strength in the consumer, which represents two-thirds of the overall economy.
"This is evidenced by robust employment growth, a nascent uptick in wages, improved consumer balance sheets, and higher home values.
"Based on all of these data points, we feel the consumer's forward propensity to spend is strong,'' it said.
"In addition, the US industrial economy, a source of some consternation over 2016, seems to be inflecting upward.
Importantly, after six consecutive quarters negatively impacted by the dual headwinds of the US dollar strength and negative drag associated with the downturn in energy, US corporate earnings inflected positively in Q3, both on a sales and earnings per share basis.
"Furthermore, US GDP inflected upward from 1.1 per cent in Q2 to 2.9 per cent in Q3.''
This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts
SIIC ENVIRONMENT | BUY
TARGET PRICE: S$0.68
JAN 18 CLOSE: S$0.58
DBS Group Research, Jan 17
Despite the possible dilution from the share placement, we maintain our "buy" rating.
The company is making good progress of gradually expanding its water treatment portfolio with good growth potential from upgrades and tariff hikes. It is also grabbing opportunities in the sludge treatment market.
After the share placement, its financial position will be strengthened, allowing it to conclude more mergers and acquisition transactions.
To reflect the share placement, our target price is adjusted to S$0.68, based on 25 times forecast 2017 earnings, excluding construction revenue.
KEPPEL REIT | NEUTRAL
TARGET PRICE: S$1.03
JAN 18 CLOSE: S$1.045
Citi Research, Jan 16
In a lead-up to its full-year results to be released on Jan 24, Keppel Reit announced it had reviewed the underlying methodology used to compute portfolio rental reversions in each of the first three quarters of 2016.
Based on this and given the absence of a prescribed market practice on rental reversion computation, it noted it had employed an inconsistent methodology in each of the quarters.
Following the review, Keppel Reit has decided to adopt the Q1 2016 methodology for the full year, which would take into account all types of lease renewals and all assets. Using this, rental reversions for H1 2016 and 9M 2016 would have been -11 per cent and -9 per cent.
We believe investors would mostly focus on the rationale for the announcement and may not see the absence of a "prescribed or uniform market practice" as a compelling justification in the shifts in computation methodology.
PROPERTY DEVELOPMENT AND INVESTMENT | OVERWEIGHT
CIMB Research, Jan 16
Property stocks have ticked up in recent months on the back of fund inflows, as well as newsflow, on potential M&A activities. The sector is currently trading at 36 per cent discount to revised net asset value, a tad higher than the minus one standard deviation below mean discount level.
At the current level, we think much of the oversupply concerns and rising interest rate environment have been priced in. We think catalysts such as increased land banking could emerge as the residential market digests the high incoming inventory.
Hence, we maintain our "overweight" call. Our top picks are UOL, City Developments and CapitaLand. Downside risks to our call include rising unemployment rate and a sharp spike in interest rates.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.