Corporate earnings take centre stage

STI drops 39.6 points to 3,575.68; losers outpace gainers 276 to 147

Corporate earnings reporting dominated yesterday, after the US Federal Reserve held interest rates steady in line with market's expectations.

The committee signalled that the US central bank has noted the uptick in inflation but isn't likely to hike rates more than the market's expectations for this year.

The Dow Jones Industrial Average fell 0.72 per cent, or 174 points, to 23,924, its fourth straight decline. In Asia, the Dow futures were up 31 points, at 23,856.00.

The MSCI world equity index, which tracks shares in 47 countries, traded flat in percentage terms.

"But with much of the good news in the equity world currently factored, investors are left mulling over the paradoxical landscape of stellar earning but higher interest rates and the threat of trade war. This struggle is unlikely to end anytime soon,'' Mr Stephen Innes, Head of Trading Apac at OANDA, warned.

In Singapore, the Straits Times Index (STI) opened at 3,585.30, before settling at 3,575.68, down 1.1 per cent, or 39.6 points, from Wednesday's close. More than 2.2 billion shares, valued at $1.5 billion, were traded. There were 147 gainers to 276 losers.

Local banks led the laggards, with DBS Group leading the pack as its shares were quoted ex-dividend yesterday.

The shares closed at $29.28, down $1.33, or 4.35 per cent, with more than 11 million shares changing hands. United Overseas Bank (UOB) closed at$29.58, down $0.41, or 1.37 per cent on about 3.8 million shares.

Nomura kept its buy rating on UOB after the bank's first quarter results came in above consensus. "We think the market will react well to the results,'' Nomura's analyst said.

Singtel and Venture Corp bucked the downtrend to close higher, at $3.52 and $19.75, respectively.

In its Singapore Monthly Strategy report yesterday, DBS Group Research raised its year-end target for the STI to 3,850, from 3,715 previously, on the strong earnings upward revision led by banks.

"Near term, good first quarter results for banks are priced-in with the STI currently trading above 13.51 times the average 12-month forward price to earnings multiple,'' DBS said.

DBS analysts noted that World Cup and stocks do not mix well.

"STI fell by an average of 8.6 per cent in the two months between end-April and end-June during the past six tournaments. Trading activity tends to slow starting May. A healthy consolidation with the best market re-entry time in beginning July if history repeats."

The near-term resistance for the STI is pegged at 3,650, while support is at 3,500.

Folks at DBS continue to favour mid to late cycle plays such as capital goods, basic materials, commodity-related, consumer services and consumer goods stocks.

Its top picks are Wilmar International and Thai Beverage Public Co for consumer goods; Genting, Dairy Farm and Singapore Airlines for consumer services; Keppel Corp, Sembcorp Industries and Sembcorp Marine for the oil and gas space.

S-Reits may continue to underperform if the US Federal Reserve signals for a June hike.

Companies in a net cash position can better weather a rising borrowing cost environment, DBS analysts said. Besides lenders UOB, OCBC and Hong Leong Finance, other stocks that fit the bill are Genting Singapore, Yangzijiang, Sheng Siong, SIA Engineering and SingPost.

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