Business

STI rebounds, with Dow in surprise rise

Banks were once again the prime movers of the local market's benchmark index

The Straits Times Index yesterday rebounded 15.92 points to 3,265.26 as tensions surrounding North Korea's missile test on Tuesday eased - the Hang Seng Index surged 1.2 per cent, the Dow futures rose 30 points and Europe opened in the black across the board.

The rebound was largely because of Wall Street's Tuesday rise, which was unexpected as the Dow futures had earlier signalled a steep fall.

Turnover improved to 1.9 billion units worth $1.02 billion, the first time this week that the $1 billion mark was surpassed.

The broader market followed the index, recording 242 rises versus 186 falls, excluding warrants. Banks were once again the prime movers of the benchmark index, together with Singtel and Wilmar.

Among the most active index stocks were Golden Agri Resources and Yangzijiang Shipbuilding, the latter apparently back in play after a brief spell of weakness. The counter rose $0.025 to a 52-week high of $1.625 on a volume of 15.1 million.

Credit Suisse's Kum Soek Ching, head of South-east Asia research, Private Banking, said in her Aug 28 Research Alert that 12 months out, an above-mean price/book for the banks can be justified on a cyclical recovery in return on equity, backed by margin expansion on higher short-end rates, continued loans recovery on strong nominal GDP growth in the region and rising wealth management contribution.

News reports attributed the easing of tensions over Monday's missile test to US President Donald Trump's response that "all options are on the table", in contrast with his earlier "fire and fury" threat which had rattled markets.

As a result of hopes that there would not be armed confrontation, safe havens such as gold, silver and the Japanese yen which had earlier risen, ended slightly lower.

IG added that apart from Mr Trump's less threatening stance, a less likely support for the recovery in US stocks may have been the shift of focus to tax with a speech expected from him yesterday.

"In addition, key US data including a second reading for US Q2 GDP and US private ADP payrolls numbers are due today with positive showings expected, justifying the turn of sentiment for markets," said IG.

Rabobank, however, said that although markets have breathed a sigh of relief over North Korea, geopolitical risks will likely prevail.

"North Korean leader Kim Jong Un warned that Tuesday's missile launch was a 'meaningful prelude to containing Guam', adding that his country will conduct more ballistic missile tests," said Rabobank.

Because of the difficulty in ensuring a proper diplomatic solution, Rabobank said it thinks that "concerns about North Korea are likely to re-escalate in the coming weeks".

In other news, State Street Global Exchange said its Global Investor Confidence Index (ICI) decreased to 106.8, down 2.1 points from July's revised reading of 108.9.

The decline in sentiment was driven by a 4.9-point drop in the European ICI to 89.3 along with a 0.3-point decrease in the North American ICI to 111.8. By contrast, the Asian ICI rose by 3.3 points to 99.3, said SSGE.

Mr Michael Metcalfe, senior managing director and head of global macro strategy, State Street Global Markets, said that all seems to have gone right in the eurozone this year.

"Nevertheless, the more cautious approach of European investors this month shows that the potential headwinds of a stronger Euro and eventual tapering of central bank asset purchases can no longer be ignored," he said.

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

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