Business

Banks drag STI down by 16.89 points

Investors remain concerned about local banks' exposure to the ailing oil and gas sector

Political posturing and the threat of war between the United States and North Korea were pushed aside this week, overshadowed by concerns over the local banks' exposure to the ailing oil and gas (O&G) sector, domestic political worries in the US surrounding escalating racial tensions and a terror attack in Barcelona.

Yesterday, the Straits Times Index (STI) fell for the fourth consecutive day, this time by 16.89 points to 3,251.99.

Over the course of the week, the index dropped 28 points or 0.9 per cent, the four-day losing streak somewhat cushioned by Monday's 29-point rise.

That rise had been driven largely by the banks, and so it was that the subsequent weakness came from falls in DBS Group, United Overseas Bank and OCBC Bank.

Selling of the banks came after O&G firm Ezion suspended trading of its shares because of financial problems, prompting observers to say that bank earnings were being reassessed by the market.

OPTIONS

Macquarie Warrants (MW) in its daily newsletter yesterday noted Ezion's suspension as well as losses reported by other O&G stocks, such as Nam Cheong and Marco Polo Marine, which - like Ezion - are in discussions with stakeholders on the options going forward.

"The three-month Sibor (Singapore interbank offered rate) had merely a 5 basis point increase in Q2 and 11 basis point increase in July.

"As Singapore's benchmark rates have failed to keep abreast with those of the US, the currently flat interest margins may continue to cap earnings growth for a longer time," said MW.

"Macquarie Research (MQ) is moderately positive on the Singapore banks. DBS is MQ's sector top pick (12-month target price: $22.20).

"MQ has a Neutral rating on OCBC - target price $10.40. MQ has a Neutral rating on UOB - target price $21.50."

The market also spent the week reassessing the prospects of beauty products firm Best World International in the light of a crackdown in China on pyramid selling schemes.

Although Best World has said it does not operate such a model in China, its shares nonetheless came under tremendous pressure, losing 28 cents or 19 per cent over the week to end at $1.195.

... The currently flat interest margins may continue to cap earnings growth for a longer time. Macquarie Warrants

But yesterday, it bounced 16 cents with 49 million done.

Other second-liners in play this week were Rowsley, Jadason Enterprises and Addvalue Technologies.

ACTIVE

Index stocks that were active included Singapore Telecommunications, Yangzijiang Shipbuilding and Thai Beverage.

On the external front, perhaps the most noteworthy event was not an escalation of tensions between North Korea and the US, but the concerns about US President Donald Trump's remarks over racial protests in Charlottesville, Virginia, that many have criticised as being pro-white. The worries have led to top corporate leaders resigning from Mr Trump's business councils.

According to US newspaper Barron's, Wall Street's major indices began sliding on Thursday after news suggesting that former Wall Streeter Gary Cohn could resign from his role as a top White House economic adviser because of those remarks appeared.

Despite Mr Cohn saying his departure was only speculation, stocks still weakened with observers noting Mr Trump's pro-business reputation - which had helped propel Wall Street to new highs this year - is now under a cloud.

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