Business

Stock markets rise despite US govt disarray

STI posts seven-point advance over the week despite US Fed's warning of coming interest rate hike

US President Donald Trump said this week that his administration is running like a "fine-tuned machine" despite his national security adviser being fired, his pick for Labour Secretary pulling out of the running for the job, and his choice of a replacement national security adviser rejecting the offer.

However, the obvious chaos and disarray in the upper echelons of US government aside, stock markets are operating like fine-tuned machines, opting to view the glass as half full despite a mid-week warning from US Federal Reserve chair Janet Yellen that interest rates will have to be raised soon, perhaps even more than previously thought.

With Wall Street interpreting this as a reason to buy banks and therefore rising to new all-time highs, the impact here was that after a Tuesday sell-off following OCBC's results, the Straits Times Index rebounded in the next three days, gaining 10.96 points yesterday to close at 3,107.65. For the week, the index advanced seven points.

Turnover has improved over the past month from last year's dismal S$1 billion daily average and yesterday saw 3.8 billion units worth S$1.4 billion done.

Excluding warrants, there were 227 rises versus 228 falls, so trading was more mixed than firm.

Banks have been the main play throughout the index's rise, with all three releasing their latest figures this week.

While OCBC's numbers triggered Tuesday's sell-off, DBS' and UOB's were apparently well-received by the market, perhaps because investors chose to focus on there being no new problem areas within the oil and gas sector to worry about, and the likelihood that higher interest rates mean better bank earnings.

There are increased risks of trade protectionist measures in the near term as the US administration focuses on delivering on campaign promises. Credit Suisse in its latest APAC Investment Monthly

This much was the thrust of UOB-Kay Hian's "buy" on DBS. "The worst could be over as management has guided for a moderation in NPL (non-performing loans) formation and credit costs in 2017. DBS also possesses the highest beta to rising US interest rates due to its strong deposit franchise in Singapore. Maintain BUY. Target price: S$21.50."

PENNY STOCKS

Among penny stocks, Noble Group stood out with a sharp rise after news that China's state-owned company Sinochem may take a strategic stake in Noble. RHT Health Trust's mid-week crash drew a query from the Singapore Exchange, as did AEM Holdings' spike.

Credit Suisse, in its latest APAC Investment Monthly, said that Asian economies were on the cusp of a cyclical upturn.

"Robust PMI numbers from China and Taiwan indicate that industrial activities are gaining pace.

"The improving economic backdrop and reflationary trends are being reflected in the corporate earnings recovery story with the MSCI Asia ex-Japan Index (MXASJ) expected to deliver EPS growth of 15 per cent in 2017.

"However, we believe that following the US presidential inauguration, the tail risk for Asian equities has risen. There are increased risks of trade protectionist measures in the near term as the US administration focuses on delivering on campaign promises.

"Market participants could react to headline newsflow, which could lead to increased volatility in the markets."

sivan@sph.com.sg

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