STI up on hope Dow closes above 20,000

The Straits Times Index advanced for the fifth consecutive trading session yesterday, gaining 18.91 points at 2,981.54.

This was most likely in response to Friday's US jobs report that raised the likelihood that Wall Street would enjoy a decent Monday, with hopes that the Dow Jones Industrial Average might close above 20,000 for the first time ever.

That this might be the case was the signal from the futures market where the Dow futures traded in positive territory throughout local trading hours. At 5pm, however, it had dipped marginally into the red.

The STI's rise takes its five-day total to just over 100 points or 3.3 per cent. Apart from a push on blue chips, the other notable feature was rotational punting of low-priced issues - a hallmark of trading at the start of a new year. In yesterday's session, new names such as Accrelist and Equation occupied the top spots in the actives list, the latter displacing Noble Group, which for most of last year headed the list.

Overall volume, however, remained weak at 2.1 billion units worth S$881.2 million, versus S$1.14 billion on Friday. There were 265 rises versus 177 falls, excluding warrants.

All three banks closed with gains. Nomura in its report on Singapore banks said while the outlook for the sector has improved recently, it thinks valuations have reflected the brighter outlook and will struggle to push on much from here, with the exception of DBS.

"While current average forward P/BV (price/book value) of 1.02x is among the lowest in the post-GFC era, we expect it to remain between -1 (1.0x) and -0.5 standard deviations (1.1x) from its 10-year mean of 1.3x, at least until this prolonged asset quality cycle subsides,'' said Nomura. It has a "buy'' on DBS, is "neutral'' on UOB and called a "reduce'' on OCBC.

Mr Rick Rieder, chief investment officer of global fixed income at BlackRock, said that looking at the US jobs report, he believes continued labour market strength this year will allow the unemployment rate to drop towards the low 4 per cent region by year end, underscoring the fact that the economy is operating at a high level today.

"We think it is likely that the US economy will perform solidly this year, as remarkably improved corporate and consumer confidence levels translate to greater spending over time, and as goods-producing sectors of the economy emerge from a very long-term recession into positive growth territory,'' said Mr Rieder.

IMPROVING

ABN Amro chief economist Han de Jong in his Jan 6 Macro Weekly, "Is it Trump, or is it not Trump, that is the question'', said he thinks the improvement in cyclical conditions is supported by sustained low interest rates and improving credit conditions as well as calm in financial markets for most of 2016, after wild volatility early in the year.

"In addition, the recovery in oil and other commodity prices has played a role, as has policy stimulus in China and the turn of the inventory cycle in key economies,'' said Mr de Jong.

Schroders in its "Outlook 2017: Greater China Equities'' said the Trump presidency has raised hopes of stronger economic growth in the US, given his promise of fiscal spending, job creation and tax cuts.

It said that while it is too early to draw firm conclusions as details are not known yet, what has been articulated thus far is already fraught with potential risks, including concerns over the burden of the fiscal deficit in the US and the negative impact on the mortgage and consumer debt servicing capability of consumers.

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