Investors wary ahead of FOMC meeting

Trading yesterday crawled to a virtual standstill as players waited for the outcome of the latest US Federal Open Market Committee (FOMC) meeting, which will be known today.

The Straits Times Index (STI) spent the day tracking the Dow futures and Hong Kong, eventually finishing 7.88 points weaker at 3,218.07.

Perhaps more telling was that volume came to 1.9 billion units worth $824 million, the lowest since $799 million on Aug 28. Excluding warrants, there were 182 rises versus 203 falls.

There were few features of interest other than activity in familiar names such as Rowsley, QT Vascular and Blumont. Shares of logistics management service providers Cogent Holdings jumped $0.055 or 6.1 per cent to 95.5 cents on volume of 2.5 million, drawing a query from the Singapore Exchange.

Macquarie Warrants (MW) in its newsletter said Macquarie Equities Research (MQ) has raised its STI target to 3,400.

"Which will be the top performing Asean market in 2018? Indonesia (28 per cent) and Thailand (24 per cent) won the most responses at MQ's Asean conference," said MW.

"MQ is more cautious on these markets . . . MQ sees better value in Singapore (18 per cent of vote) led by banks."

MW added: "MQ recently raised its STI target by 5 per cent to 3,400, which implies the highest total shareholder return in Asean. Singapore's top-down story remains positively biased: In August, the Ministry of Trade and Industry (MTI) narrowed its 2017 GDP (gross domestic product) growth outlook to 2 per cent to 3 per cent from 1 per cent to 3 per cent before; and higher-frequency top-down data MQ uses in MQ's index model like non-oil domestic exports, retail ex-motor sales, and Singdollar are all coming better than expected."

Bank of Singapore's chief economist Richard Jerram in his Sept 18 note said tighter monetary policy is positive as it reflects a normalisation of the world economy after the prolonged disruption of the US sub-prime crisis, but it is negative as it makes investing more challenging.

"Our tactical asset allocation stance remains cautious, with an underweight position on equities," he said, adding that even though the speed of rate hikes will be slow, the direction is clear.

Deutsche Bank's Fixed Income Research report said there are areas of the global financial system that look at extreme levels.

These include valuations in asset classes, the unique size of central bank balance sheets and even the level of potentially game-changing populist political support around the globe.

"If there is a crisis relatively soon (within the next two to three years), it would be hard to look at these variables and say there was no way of spotting them in advance," it said.

Rabobank's global head of financial markets research Jan Lambregts in his media briefing yesterday described the outlook as The Great Gamble.

"Central banks are sending us one clear message - the end of ultra-easy money is approaching," he said.

"However in a high-debt, asset-based global economy, how can rates be easily raised?"

He said the key will be whether there is sufficient wage growth and capital investment, in which case the gamble should pay off.

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