Bank stocks defy rating agencies' prognosis

The Straits Times Index on Tuesday drifted within a narrow band before finishing at 2,955.23 for a gain of 3.04 points on the day after a late spike in the Dow futures suggested a seventh consecutive rise in the Dow Jones Industrial Average on Tuesday, and after Europe opened in the black.

Turnover was below average by recent standards at 2.3 billion units worth $1.1 billion and the broad market was marginally weak, recording 190 rises versus 235 falls excluding warrants.

Some observers suggested a likely interest rate hike at this week's US Federal Open Market Committee meeting as a reason for the early weakness, but this was only half-hearted as a virtual certain rate hike had been priced into the market for at least three weeks now.

All three banks rose, with their gains contributing about seven points to the STI. The rise came despite Fitch Ratings and Moody's Investors Service saying the outlook for banks in the region is weak.

Fitch said that most of Asean's banking sectors are likely to face weak loan demand and further pressure on asset quality in 2017. It maintained its negative banking-sector outlook for Indonesia, Malaysia and Thailand, and has moved Singapore's to negative from stable to reflect continued asset-quality risks from oil and gas exposures and broader pressures from a slowing economy.

"We expect operating conditions for the oil and gas sector to remain tough, despite a modest recovery in energy prices, which will place continued pressure on more vulnerable sub-segments such as oil service operators," said Fitch in a press release.

"Singapore banks were hit by debt restructuring and defaults in the oil and gas sector in 2015-2016, which pushed up the average NPL ratio of the three local banks to 1.4 per cent at end-September 2016 from 1.1 per cent at end-2015."

Similarly, Moody's Investors Service says that the outlook for banks in the Asia-Pacific for 2017 is negative, because of the challenging operating conditions in the region, which will weigh on the banks' asset quality and profitability.

RAPID CREDIT EXPANSION

"Problem assets will rise from a generally low level, due to previous rapid credit expansion, elevated corporate and household leverage in some economies, the ongoing recognition of credit problems, and challenges in commodities and cyclical industries," said Stephen Long, a Moody's managing director, in a press statement.

In the second line, oil and gas firm Emas Offshore's shares jumped $0.017 or 28.3 per cent to $0.077 with 62,300 traded after the company announced that it has reached in-principle agreements with the majority of its principal bankers on the refinancing of its financial obligations and the provision of additional working capital facilities.

Natixis Global Asset Management in a press release announced findings from its latest Global Survey of Institutional Investors that sought the views of 500 institutional investors.

"Volatility topped the list of concerns for 2017, with 65 per cent pointing to geopolitical events, 38 per cent citing the US election, and 37 per cent noting the potential for changing interest rate policies," said Natixis.

It added that 73 per cent of money managers believe the current market environment favours active management, while 49 per cent said passive investing distorts relative stock prices and risk-return trade-offs.

"(Some) 43 per cent of investors surveyed before the US election said emerging markets would be the best-performing equity market in 2017 compared to 31 per cent of those surveyed after the election".

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