Business

STI slides sideways before Fed minutes out

Sideways move does not mirror broad market, where losers outnumbered gainers 230 to 200

'Twas the day before the US Federal Reserve December meeting minutes, and the slithy toves - wait, wrong script.

Well, nothing exciting happened anyway in the local share market yesterday, as traders largely decided to beware the rate hike and stay put.

Though bank stocks went up, the benchmark Straits Times Index (STI) moved sideways, dipping a marginal 1.17 points to close at 2,954.06.

The biggest drag on the index was conglomerate Jardine Matheson Holdings.

The index's sideways move did not exactly mirror the broad market, where losers outnumbered gainers 230 to 200, or about eight down for every seven up.

Trading volume was fairly decent and heavier on small-caps. About 1.94 billion shares worth $950.3 million in total changed hands, which worked out to an average unit price of $0.49 per share.

Though the STI finished the session 2.5 per cent up for the year, analysts have thus far not mentioned any significant chance that the index could end the year at or above the psychologically significant 3,000-point threshold.

OCBC Investment Research said in a note yesterday: "We expect the STI to remain largely range-bound for now.

"On the upside, we peg the initial hurdle at 2,970, ahead of 3,000; on the downside, we peg the immediate support at 2,925, followed by its next support level at 2,900."

Caution reigned in Singapore ahead of the Fed meeting minutes scheduled to be out today, despite overnight optimism on Wall Street over Tuesday night (Singapore time) which boosted the Dow to a record high for the seventh straight session.

The market consensus has been that the Fed will almost certainly raise the funds target rate by another 25 basis points in December, and analysts reckon that has already been priced in.

AGGRESSIVE

Mr Nicholas Teo, trading strategist at brokerage KGI Securities, warned of overconfidence in a note yesterday and asked whether the market was prepared if the Fed were to announce a "more aggressive rate tightening cycle" to come.

"This year has been unique in the way markets have reacted to key 'risk events'.

"In both Brexit and the US election, investors and traders alike were gifted with solid bargain hunting opportunities as markets recover almost immediately from the earlier jolt. Many participants had good outings, trading the markets profitably," he noted.

However, the Fed meeting minutes release "may bring many traders back to the table with a presumptuous swagger that may prove reckless".

He added: "The effects of both Brexit and a Trump administration have yet to make their impact felt. A rate increase, however, would have an almost immediate and material impact to both financial markets and to the economy at large."

Here, the most actively traded counter was oil and gas company Magnus Energy Group, which ended flat at $0.001 with 116.6 million shares changing hands.

Other actives included commodities trader Noble Group and Korean movie producer Spackman Entertainment Group.

All three local banks advanced. DBS Bank had the biggest percentage gain, rising 0.9 per cent, or 16 cents, to $17.96.

OCBC Bank gained five cents, or 0.5 per cent, to $9.24 and United Overseas Bank went up four cents, or 0.2 per cent, to $21.20.

Maybank Kim Eng analyst Neel Sinha said in a Tuesday report that though the STI's trailing price-to-earnings valuation of about 12.5 times looked attractive, it was largely due to a "de-rating" of the banks sector.

Excluding banks, the index was actually trading at a "small premium to the mean", he added.

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