Business

STI regains 3,000 level despite weak Wall St

Turnover comes to 1.9b units worth $1.3b but advance-decline score suggests the index's gain is not broad-based

The Straits Times Index enjoyed a sixth consecutive rise yesterday, gaining 24.48 points to 3,006.02, making it the first time since early November 2015 that it closed above 3,000.

Turnover, which dipped below $1 billion on Monday, amounted to 1.9 billion units worth $1.3 billion, though the advance-decline score of 256-201 suggested the index's gain was not broad-based.

The last time the STI saw the 3,000 level was on Nov 4, 2015, when it ended at 3,039.

It stayed above 3,000 for only three days then and until yesterday had not managed to regain that level.

The index's 14-month high came despite a weak overnight Wall Street, a sharp fall in oil prices and a soft Tuesday for the Dow futures that suggested the US market may have to wait a little longer to see the Dow Jones Industrial Average close above 20,000 for the first time.

Brokers noted that US equities have traded in a tight range for the past 2-3 weeks, with the Dow nearing but not quite managing the breakthrough 20,000 several times.

"It could be that the market there has realised that it ran up prematurely because nobody knows what the new president's policies will be," said a dealer.

"So until there's greater clarity, it looks like trading sideways for now."

Here, much of the support for the STI over the past year has come from the banks, though this was less so yesterday, when gains in the three added a total of just eight points to the index.

Among the other big index gainers was Global Logistic Properties, which has announced it is in takeover talks. The stock added $0.08 to $2.55 on volume of 33 million.

"Although the STI's rise has not been that broad-based, it has helped firm up sentiment in the market," said a broker.

"It's not great but at least it's something."

Bank of America-Merrill Lynch, in its Jan 9 "US Rates - Awaiting Fiscal Clarity", said that US rates should modestly increase over the course of this year due to the expected impact from stronger growth and higher deficits and most of the move higher should be front-loaded in the first half of the year.

"Risks to our near-term outlook for higher interest rates include:

- expectations of US fiscal stimulus to disappoint as House deficit hawks insist on revenue-neutral tax cuts or spending measures;

- rapid USD appreciation results in slower inflation and a more moderate pace of Fed rate increases; and

- risk off spurred by elevated geopolitical risks or an emerging market growth slowdown."

DBS chief investment officer Lim Say Boon, in his latest Investment Insights, said that while the current US economic momentum and the promise of greater policy support is positive for equities, this is also coming at a time when the US economy is close to full capacity.

"Should inflationary pressure accelerate from here, it could trigger a more hawkish response from the US Federal Reserve.

"And aggressive monetary tightening in this part of the cycle could well be the proverbial straw that breaks the camel's back," said Mr Lim.

Bank of Singapore chief investment officer Johan Jooste, in his Jan 10 "Themes to start 2017", said that compared to the last few years, investors should anticipate a greater degree of market volatility in 2017.

"A far greater number of policy outcomes are possible this year, as Mr Trump looks to introduce policy changes that had not been contemplated before.

"This alone is probably enough to spur market swings," said Mr Jooste, adding that portfolio diversification will be crucial this year.

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

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