Volume drops below $1 billion as holidays near
STI drops 24.78 points to 2,913.08, with falls in DBS, UOB and OCBC accounting for a combined 12-point loss
The start of the week before Christmas saw trading volume dwindle from last week's $1.2 billion daily average to 1.9 billion units worth $897.2 million.
The banks have been the main index movers this year, and so it was again yesterday when the Straits Times Index (STI) dropped 24.78 points to 2,913.08, with falls in DBS, UOB and OCBC accounting for a combined 12-point loss.
Excluding warrants, there were 167 rises versus 263 falls.
Brokers said that the drop-off in turnover was to be expected, given the impending holiday season and the sharp run-up of the past five to six weeks since the US elections. Yesterday's fall cut the STI's gain for the year to 31 points or 1.07 per cent.
The day's most active stock was movie firm Spackman which traded 110.5 million shares, but the day's most active counter was the Macquarie Bank structured call warrant on the Hang Seng Index with a 23,000 strike price and Jan 26, 2017 expiry that fell $0.005 to $0.041 on volume of 172 million.
The underlying Hang Seng index closed 0.8 per cent lower at 21,832.
Air-conditioning firm Natural Cool has been in the news recently because of massive volatility in its shares last week ahead of a Dec 22 extraordinary general meeting requisitioned by some shareholders seeking to revoke a share issuance mandate.
Yesterday, the company's shares shot up $0.028 or 29 per cent to $0.125 on volume of 35.3 million, making it the day's third-most active stock.
On the external front, European markets opened weaker despite a 28-point rise in the Dow futures. Analysts expect prices to consolidate in the last two weeks of the year.
ABN Amro in its Dec 16 Macro Weekly report said that when the US Federal Reserve raised interest rates last December, their forecast was that four more rate hikes were likely this year.
"We soon took the view that was unlikely, and we pencilled in one rate hike at most. And one rate hike was, indeed recently delivered," said ABN.
"The Fed also said that three more hikes are expected in 2017.
That is up from the two hikes they were expecting earlier and is bang in line with the expectation we have had for some time.
"Stronger growth, partly as a result of the Trump policy agenda, and modestly higher inflation will justify a gradual further tightening of monetary policy in our view. So this time, we agree with the Fed."
Phillip Capital in its Dec 16 report (Fed Rate Cycle: Fed is late in raising rates) said that Fed chair Janet Yellen said that the US central bank was not behind the curve when it raised rates last week.
"We believe otherwise and that FOMC (Federal Open Markets Committee) had no choice but to raise the rate due to its given mandate," said Phillip.
"FOMC's mandate is to maintain price stability and reduce unemployment through its monetary policy.
"Our study on both economic data has shown that FOMC was indeed late in raising its interest rate, and this will lead to the inevitable chasing of the curve, resulting in a steeper increment of interest rate as compared to their original projection."
Bank of America-Merrill Lynch in its Dec 15 US Economic Weekly said that Ms Yellen last week suggested that it is important to consider the type of fiscal stimulus to understand the impact on the short-term and long-term growth trajectory.
"We think she is alluding to the fact that some policies could succeed at creating a short-term boost but result in less stable future growth, given higher debt levels. We believe that the coming policy changes will boost medium-term growth, but we are sceptical about its ability to increase potential growth, at least not quickly," said BoA-ML.
This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts
EMERGING ASIA | NOT RATED
Bank of America Merrill Lynch, Dec 16
On external buffers, most of emerging market (EM) Asia is in better shape than during the 2013 taper tantrum: For potentially vulnerable countries, the external short-term debt to GDP ratio (or short-term debt to foreign exchange reserves) or the size of current account deficits (or both) has fallen.
In particular, India and Indonesia - two countries of the "fragile five" during the taper tantrum - are currently running smaller current account deficits and have smaller external financing needs.
Commodity-importing markets (for example, South Korea, Singapore and Taiwan), enjoy large current account surplus, thanks to cheap oil and commodity prices.
Compared with June 2004 (the beginning of the last Fed tightening cycle) and May 2013 (the starting of the taper tantrum), most EM Asian economies have been struggling to maintain growth momentum amid weak global growth and sluggish world trade.
Domestic demand has become a more important source of growth due to weak external demand, making policy stimulus (either monetary or fiscal) more necessary than before.
In principle, the higher the policy rate of an EM Asian country is relative to the US Fed funds rate, the more room the central banks in the region will likely have for potential easing and can maintain the current policy stance even after the Fed's hike.
From this perspective, Bank Indonesia, Reserve Bank of India and the Monetary Authority of Singapore (MAS) have greater monetary-policy room, whereas Bank of Korea, Bank Negara Malaysia and Central Bank of The Republic Of China (Taiwan) have smaller (or little) room; Hong Kong Monetary Authority does not have room due to its currency board.
Weak currency may also relieve some pressure to ease.
Most EM Asia countries have fiscal space, albeit at varying degrees, allowing flexibility in fiscal policy to cushion downside risks, if needed.
We expect fiscal spending to be higher in Indonesia, Korea, Singapore, the Philippines and Taiwan next year.
But, India and Malaysia face a greater constraint on fiscal policy due to higher debt levels.
With stronger external buffers and policy support, EM Asia will likely muddle through various risks, including the Fed's hiking cycle: Looking ahead into 2017, the improving US and global growth outlook along with gradually rising oil and commodity prices will be a favourable factor.
Likewise, stable growth in China will help in this process.
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.