Business

Weak session in wake of Wall St reversal

Turnover totals 3.1 billion units worth $1.03 billion; excluding warrants, there were 160 rises versus 325 falls

The Straits Times Index slipped 0.96 of a point to 3,175.59 yesterday amid weak sentiment that emerged in response to the sudden jitters on Wall Street on Wednesday when the Dow Jones Industrial Average reversed a 200-point rise to close in the red.

That dramatic reversal was attributed to two developments - US House of Representatives Speaker Paul Ryan saying that tax reform would be harder than healthcare reform, and release of the Federal Reserve's March Open Markets Committee meeting which suggested three rate hikes may occur this year instead of the anticipated two.

Trading here was relatively subdued as a result of Wall Street's uncertain performance and helping keep traders at bay was that the Dow futures slipped marginally into the red. Over in Hong Kong, the Hang Seng Index finished with a 0.5 per cent loss.

Turnover in Singapore amounted to 3.1 billion units worth $1.03 billion and excluding warrants, there were 160 rises versus 325 falls.

In the telco sector, shares of Singtel ended $0.01 weaker at $3.91 on volume of 12.7 million. Moody's Investors Service said that the high cost of the just-concluded spectrum auctions is credit negative for Singtel as it will further increase debt at a time when leverage is testing Moody's tolerance range for Singtel's Aa3 rating level.

"Singtel acquired 40MHz in the 700MHz frequency band, 20MHz in the 900MHz band, and 15MHz in the 2500MHz band for an aggregate price of $563.7 million, and plans to fund the spectrum through a combination of cash and additional bank debt", said Moody's.

"The spectrum payment needs to be made upfront, however, Singtel may apply to the Info-Communications Media Development Authority to defer payment of the 700 MHz spectrum fees to a date no later than six months prior to the commencement of the 700 MHz spectrum rights."

S&P Global Ratings said that Singtel had limited ability to pass on the spectrum costs to consumers, due to the increased competition in the telco market with the entry of a fourth firm.

"We believe that, until Singtel receives the Netlink Trust IPO proceeds, it has no financial headroom under the current rating against operating underperformance or additional debt-funded acquisitions," said S&P.

Rabobank in its daily notes discussed the possibility that there would be a total of three rate hikes this year.

It was sceptical because the failure of US President Donald Trump's healthcare reform supports its view that the timing, size and impact of the much-vaunted fiscal policy plans that are boosting the confidence of investors, consumers and businesses are likely to disappoint.

"Global growth is weak to begin with, and could be undermined further by protectionist tendencies around the world or adverse effects from rising USD interest rates," said Rabobank.

"Meanwhile, China remains a downside risk to the global economy, and the same is true for developments in Europe. In our view, the probability of at least one accident occurring before the end of the year is larger than 50 per cent. Therefore, we think that two hikes may be more realistic."

Bank of Singapore chief economist Richard Jerram in his April 6 "As Good As It Gets?" said that stronger growth brings the prospect of monetary policy tightening.

"This is most apparent in America, where we think the Fed is set to raise interest rates six more times by the end of 2018... In a year's time, G-3 monetary policy will still be very loose, but the lengthy era of zero interest rates and abundant liquidity is slowly drawing to a close."

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

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