Business

STI slips but broad market remains firm

Index fails to sustain early push from yet another Wall Street all-time high; broad market mixed with 240 rises and 216 falls

The Straits Times Index yesterday first powered up to an intraday and 2016 high of 2,980 before wilting in the afternoon session to end at 2,958.86 - a nett loss of just 0.98 of a point.

The broad market however, was marginally firm, recording 240 rises versus 216 falls.

Turnover amounted to 1.8 billion units worth $1.4 billion, in line with post-US election daily averages.

The early push came from yet another all-time high on Wall Street on Wednesday, and a relatively firm session for the Dow futures - at 5pm, the contract gained just five points, suggesting a slightly firm opening for Wall Street yesterday.

Over in Europe, markets opened cautiously firm ahead of a key European Central Bank meeting.

Although markets expect the European Central Bank to continue with its monetary stimulus via buying of bonds, traders watched for any change to the pace of these purchases.

Genting Singapore was STI's most active stock, losing $0.03 at $0.995 on volume of 46 million. Trading in the banks was heavy - DBS alone accounted for $241 million in value traded. Together with $75 million each done in UOB and OCBC, total bank trading was $391 million, or about 28 per cent of the entire day's takings.

In a Singapore Banks report, titled There Is Hope, on Wednesday, DBS Vickers said Singapore banks' share prices have rallied a good 8 per cent since the US presidential election and with more certainty of rate hikes.

"This is even before any real numbers have filtered through. The market appears to be disregarding any downside risk to further NPL (non-performing loan) issues albeit on a smaller scale and the sluggish economy," it said.

It raised its earnings estimates for the banks in view of rising net interest margins, resulting in OCBC being upgraded to "buy". UOB remains a "hold".

CYCLICAL DETERIORATION

Fitch Ratings, in its 2017 Outlook: Asia-Pacific Banks, said most are facing a cyclical deterioration in asset quality as a challenging economic environment continues to put pressure on borrowers.

"Fitch Ratings' 2017 outlook on more than three-quarters of the banking sectors in the region is negative,'' it said.

"Downside risks have also risen over the last year. China's economy has stabilised, but rapid credit growth is posing a rising threat to basic economic and financial stability.

"The US election outcome has already led to expectations of higher US interest rates, and a stronger US dollar. Dollar strength would hurt exporters in Apac and make it more difficult for borrowers to service dollar-denominated debts."

In its Outlook 2017, Bank of America Merrill Lynch said it has set a end-2017 target of 2,300 for the S&P 500, which assumes a 5 per cent gain for the year and earnings growth of 9 per cent.

For emerging markets, it forecasts modest economic growth of 4.7 per cent, up from 4.1 per cent, which is better than in the US and the rest of the developed world.

"India is expected to lead, with (gross domestic product) rising 7.6 per cent, while China's bellwether economy expands by 6.6 per cent. Overall, emerging Asia should grow by 6.2 per cent, and Eastern Europe, the Middle East and Africa should rise 1.9 per cent...," it said.

The bank forecast a "big rotation" in investment strategy.

"Domestically and globally, investments and policies that have done well in a low-rate, low-growth world have reached their peak. Long-term winners could be supplanted in 2017.

"Expect inflation rather than deflation; Main Street to prevail over Wall Street; fiscal winners to beat out zero-interest winners; and real assets to triumph over financial assets," it said.

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

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