Business

STI rebounds in cautious trading

Investors wait for key US vote that will indicate whether Trump administration can deliver on its expansionary goals

The Straits Times Index (STI), which on Wednesday suffered its largest one-day loss of 2017, yesterday rebounded 8.74 points to 3,126.93 in cautious trading as investors waited for a key vote in the US that would provide an indication of whether the Trump administration can deliver on its expansionary goals.

Turnover was moderate at 2.3 billion units worth $1.04 billion and, excluding warrants, there were 294 rises versus 163 falls.

In Hong Kong, the Hang Seng Index conceded most of its morning gains to close almost unchanged while the Dow futures slipped marginally into the red as the session wore on, possibly reflecting the uncertainty shrouding Wall Street as it waits for US lawmakers to vote on Thursday on President Donald Trump's proposed healthcare plan.

"Markets are on tenterhooks as last-minute lobbying and haggling takes place, not because the legislation is seen as any good - there's pretty broad cross-party agreement that it is not - but due to the fact that if it fails, the rest of the Trumponomics legislative agenda, such as tax cuts, a potential border-adjustment tax, and infrastructure spending, are likely to be kicked into the long grass," said Rabobank.

"In short, Trumponomics could rapidly start to look like Abenomics: nothing much except a weaker currency."

Mr David Lafferty, chief market strategist at Natixis Global Asset Management, in commenting on Wall Street's Tuesday sell-off, said he expects more as the market's dramatic run-up post-US election has been fuelled by mistaken optimism stemming from a view that bipartisan gridlock in Washington will wane.

"Markets are waking up to the reality that gridlock within the Republican party is nearly as bad as it is between Democrats and Republicans," said Mr Lafferty.

"There is a looming showdown between deficit hawks in Congress and the Trump growth agenda. Given fiscal limitations in the US, both cannot be satisfied.

"As these cracks emerge in the Trump Reflation Trade, investors should expect the ride to get bumpier."

The average value per unit traded was $0.45.

The actives list was headed by Noble Group, Alliance Mineral Assets and Artivision Technologies.

Singapore Exchange queried Broadway Industrial Group and Hanwell Holdings for reasons behind the unusual activity in their shares.

Broadway ended $0.31 or 24 per cent up at $0.161 with 44.8 million traded, and Hanwell added $0.055 or 16.4 per cent at $0.39 on volume of 5.4 million.

POSITIVE VIEW

Here, banks have been the STI's main driving force over the past year. Macquarie Warrants (MW) in its daily newsletter said warrant investors brought home more than three million call warrants on the three Singapore bank names on Wednesday.

MW also reported that traders had picked up 2.5 million calls on DBS Bank and more than one million OCBC Bank calls on Tuesday.

Since calls gain value when the underlying stocks rise, MW said the behaviour of warrant investors in these two names coincides with the view of Macquarie Research (MQ) which is bullish on DBS and OCBC with "outperform" ratings.

"MQ retains a positive view on the Singapore banks. DBS (Outperform, total shareholder return +14 per cent) remains MQ's top pick and preferred play among the Singapore banks," said MW.

"MQ likes OCBC (Outperform), and is Neutral on UOB. MQ sees further share price upside from asset quality surprising on improving trends, rising interest rates driving improvement in global sentiment and net interest income."

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