Business

STI stays resilient in face of Wall St sell-off

Index ends just 2.44 points down after plunging 35 points to intraday low; banks put up mixed performance

The resilience displayed by the Straits Times Index on Wednesday to political upheaval in Washington and turmoil on Wall Street extended into Thursday, when the index first plunged 35 points to an intraday low of 3,189 but ended with a net loss of just 2.44 points at 3,221.66 in the wake of the US market's largest sell-off in about nine months.

Turnover was in line with recent averages at 1.8 billion units worth $1.3 billion and excluding warrants, there were 167 rises versus 275 falls.

The selling of US stocks on Wednesday came after news that US President Donald Trump may have asked former FBI director James Comey to stop investigating former national security adviser Michael Flynn's alleged links to Russia, the worry being whether such a request amounted to obstruction of justice.

Bank of Singapore's chief economist Richard Jerram, in his "Policy Impact of Trump Woe" report, said Mr Trump is increasingly looking like a "lame duck" president, which casts doubt on his legislative agenda.

"At best, political distractions will delay reform, but even this is a problem with mid-term elections only 18 months away," said Mr Jerram, adding that he still expects the US Federal Reserve to raise its short-term interest rates in June.

Banks had a mixed outing, with DBS and OCBC weakening but UOB strengthening.

Macquarie Warrants (MW), in its daily newsletter, said Macquarie Equities Research's (MQ) banking sector pick is DBS.

"MQ's expectation for loan loss provisions to surprise positively materialised in first quarter of 2017 results. MQ continues to be moderately positive on Singapore banks from a 12-month perspective," said MW.

"MQ's top pick is DBS, based on inexpensive valuations at 1.14 times price over book value (P/BV), 9 per cent total shareholder return and around 3 per cent dividend yields.

"Admittedly, MQ thinks there are fewer upside (and little downside) catalysts in the near term, until 2Q17 results.

"MQ's investment case assumes no sharp decline in oil prices (i.e. they stay above US$45/barrel)."

It added that MQ's sensitivity analysis suggests near-term downside risk to be limited even if ship/rig collaterals of existing non-performing assets (NPAs) are 80 per cent written down, and that MQ has downgraded OCBC to "neutral" and maintains its ''neutral" stance towards UOB. DBS dropped $0.17 to $20.63 with 4.7 million shares done.

Elsewhere among blue chips, Singtel finished $0.01 higher at $3.76 with 27.4 million traded. The telco reported that earnings for the year ended March 31 were flat at $3.85 billion and proposed a final dividend of $0.107, bringing the full-year dividend to $0.175.

In a flash note, RHB said it is maintaining its "neutral" call on Singtel with a $4 target price.

Bank of America-Merrill Lynch (BoA-ML) in its May 18 Equity Strategy said global equity sentiment (66 per cent of indicators from developed markets, and 33 per cent from emerging markets or EMs) remains in euphoria.

"It is the developed market components that are euphoric. Both EM and Asia have seen sentiment rise in the past three months, but are well shy of euphoria," said BoA-ML.

"We remain tactically neutral - we just don't have an edge one way or another in making a big market call."

It did, however, say it remains "structurally bullish on Asia/EMs because the free cash flow (FCF) numbers in the next two years should be exceptionally strong".

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

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