Third straight day of losses for STI

A lacklustre and mixed session yesterday ended with the Straits Times Index (STI) 10.07 points lower at 3,268.88 and the broad market excluding warrants at 222 rises versus 234 falls.

It was the third consecutive loss for the index after Monday's 29-point jump. Since Tuesday, the STI has fallen back by about 40 points.

Geopolitical uncertainties, a fall in the Dow futures and a weak opening for Europe were cited as the main factors behind the softness, though equally likely as far as the local market is concerned is that most of the positive earnings news has already been priced in.

This possibility was raised by Morgan Stanley (MS) in a report, which said over the near-term it sees upside to earnings estimates and "high-frequency" indicators are strong but two positive pillars have weakened: US inflation expectations and its global trade indicator.

"The return of (US) inflation expectations from around October last year has been a clear tailwind for Singapore - particularly for banks with the expected return of pricing power," said MS, adding that it cannot rule out a rise in volatility and downside risk should inflation expectations continue to fall.

As a result, MS said it thinks the better earnings outlook has already been priced in and in order to call for more upside, among other things, it needs to see a rise in Sibor (Singapore interbank offered rate) to support expectations of an expansion in net interest margins (NIMs) and a translation of the export/ macro recovery into domestic consumption recovery.

The three banks have been driven to new multi-year highs over the past year because it is thought that NIM expansion will produce higher profits.

Selling of the sector has been the main force behind the STI's fall below 3,300 this week; yesterday, DBS Bank rose but OCBC Bank and United Overseas Bank ended weaker. Among other index stocks in play was Singtel, which fell three cents to $3.76 with 26.9 million shares traded.

Shares of beauty products seller Best World International have come under pressure this week on news that China is cracking down on pyramid selling schemes. The weakness extended into a third day yesterday when the stock plunged 30.5 cents or 23 per cent to $1.035 on volume of 32.4 million.

Although the company has said it does not operate a direct selling model in China, DBS Vickers (DBSV) in anote said because of China's move, the broker has cut sales growth projections for Best World's China operations from 80 per cent and 35 per cent to 45 and 15 per cent for 2017 and 2018 respectively.

"Potential spillover from this event could weigh on consumer sentiment and hurt member growth," said DBSV.

It downgraded the stock to "hold" with a $1.45 target price.

Shares of Sino Grandness Food Industry Group rebounded $0.014 to 19.7 cents on volume of 6.1 million after closing $0.027 lower on Wednesday.

It was queried by the Singapore Exchange and replied that it did not know of reasons for the activity in its shares.

On news that Singapore's non-oil domestic exports (Nodx) rose 8.5 per cent year-on-year in July, Nomura Bank continues to forecast full-year 2017 gross domestic product growth of 2.5 per cent, similar to the official 2 per cent to 3 per cent forecast range.

"This implies uneven growth still led by the semiconductor sector even as the broader economy remains weak," said Nomura.

Maybank Kim Eng (MKE) said it expects Nodx strength to continue in the third quarter before moderating in November/December due to high base effects."With growth broadening to services, we see overall GDP growth swinging to above 3 per cent in 3Q," said MKE.

"Our full year GDP growth forecast is at 3 per cent in 2017 and 2.4 per cent in 2018."

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