Singapore

STI gains 2.1% in week of Wall Street highs, oil recovery

On most days when the ST Index rose, the broad market recorded more falls than rises

A REBOUND in oil prices thanks to a positive Opec meeting, end-of-month price fixing/ window dressing/portfolio rebalancing on Wednesday, and the Dow Jones Industrial Average's push to new highs were the main features of the week that just passed, during which the Straits Times Index (STI) moved 31 points or 1.1 per cent into the black for 2016.

Yesterday, however, the index fell 9.21 points to 2,919.37, cutting its gain for the week to 60 points or 2.1 per cent.

Turnover, which surged on Wednesday, the last day of November, to a 2016 high of 2.9 billion units worth $2.6 billion, fell progressively to $1.7 billion on Thursday and then 1.7 billion units worth $1.2 billion on Friday.

On most days when the STI rose, the broad market recorded more falls than rises; Yesterday, the advance-decline score was 202 to 223 so the weakness was not as widespread as the index's fall would suggest.

Oddly enough, US news reports suggested that Thursday's all-time high for the Dow was not reflected in a broad market that ended mixed.

Most of the STI's rise has come from a huge push on the banks, initially because of a sudden realisation that higher interest rates means higher earnings, but later because the Government has said it will provide financial assistance to the troubled oil and gas sector, to which banks are heavily exposed.

Noble Group and Sembcorp Marine were in heavy play on Wednesday, the day that they were dropped from the MSCI Singapore Index. Despite both being simultaneously inserted into the MSCI Singapore Small Cap Index, they were heavily sold off. In Noble's case, volume done that day was an astounding 1.23 billion units.

A rebound in oil over the week by more than 10 per cent to US$51 ($72) per barrel meant that stocks from the sector, such as Keppel Corp, Ezra, Ezion and Nam Cheong, all leapt into play in the latter half of the week.

As for Wall Street, Natixis Global Asset Management's chief market strategist David Lafferty in his US Election Follow Up report noted that stocks there have been rallying partly because of a belief that the new administration's promise to spend on infrastructure will boost growth.

He pointed out that projects have to be designed and approved, so little money will be spent next year, with most of the fiscal boost coming in 2018-19.

Furthermore, conservative Republicans may seek to limit the size of any spending package given its likely deficit implications, while higher interest rates will be a drag.

"To be truly effective over a longer horizon, these infrastructure projects need to have a legitimate, productivity-boosting rationale," said Mr Lafferty.

"Spending money on projects like the infamous 'bridge to nowhere' provides only temporary employment gains, not lasting economic growth."

Rabobank Financial Markets Research said fiscal stimulus, including substantial infrastructural spending and a rollback of regulations, can provide a shot in the arm of the US economy, but said its enthusiasm is curbed by the potential for a global trade war.

"The uncertainty surrounding the latter is likely to severely limit the positive impact of any fiscal stimulus in 2017," said Rabobank.

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

Brokers' take

Compiled by Jamie Lee,
The Business Times

GLOBAL LOGISTIC PROPERTIES | BUY
TARGET PRICE: $2.37
DEC 2 CLOSE: $2.16

OCBC Investment Research, Dec 2

GLP announced it is undertaking an independent strategic review of options to enhance shareholder value, after it received a request from its largest shareholder, GIC Real Estate Private Ltd, which holds a 37 per cent stake in GLP.

Management emphasised that no definite transaction has been entered into with any party.

Overall, we see this as a positive development that underscores the fact that GLP's share price has been persistently undervalued but caution against speculating on a near-term sale of the company, which is uncertain.

We continue to see significant long-term fundamental value in the group's shares at current prices, given its business portfolio and leading positions in its key markets. We believe the outlook for advanced logistic facilities remains firm with the growth of e-commerce globally, particularly in the group's major market, China, where online shopping is undergoing vibrant growth.

SEMBCORP MARINE | HOLD
TARGET PRICE: $1.55
DEC 2 CLOSE: $1.47

DBS Group Research, Dec 2

We believe risk premium should be reduced with improving oil-and-gas outlook, following Opec's successful agreement to cut output.

The sector recovery should "motivate" customers to take delivery of existing units and place orders for production facilities. However, the operating environment remains challenging with yard overcapacity. Sembcorp Marine's orderbook declined by $800 million quarter-on-quarter to $8.4 billion as at the end of September, and is set to decline further as we anticipate order flows to remain sluggish.

The rigbuilding sector is on a structural downturn, in our view. The restructuring of a Brazilian customer continues to be an overhang and deferment and cancellation risks remain prevalent in the current climate.

Both Singapore rigbuilders have been rationalising their operations since early 2015 to cope with the lower activity level. A merger could make sense to further streamline their operations, achieve cost synergies and eliminate competition.

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.

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