Quiet session with STI dragged by banks

The Straits Times Index (STI) yesterday took its cue from movements in the Dow futures and the Hong Kong market, dropping 15.9 points to 3,225.95.

Having risen sharply on Monday ahead of Wall Street's record high later that day, trading was more subdued yesterday, with turnover amounting to 1.6 billion units worth $1.04 billion and the broad market recording 184 rises versus 227 falls excluding warrants.

A reason offered for the quiet session was caution ahead of this week's US Federal Open Market Committee meeting.

Though no interest rate hike is expected, the Fed is expected to announce plans to unwind its US$4.2 trillion (S$5.7 trillion) balance sheet that had to be expanded to that size due to the sub-prime crisis in 2008.

STI was dragged lower by the banks, Jardine stocks and Singtel. Also weighing it down was ComfortDelGro, which has recently come under pressure for a variety of reasons, including the increased competition it faces in the taxi sector. Yesterday, it dropped six cents to $2.01 on volume of 20.6 million.

Among the other actively traded STI members was Thai Beverage, which ended $0.005 weaker at 91 cents on volume of 18.1 million. In its "buy" call, OCBC Investment Research discussed a new excise tax in Thailand and said historically, Thai Beverage has been able to pass on higher costs while sales growth eventually recovers.

"Beyond Q4FY17, we take note of the end of the mourning period and the royal cremation ceremony will take place from Oct 25 to 29. Following which, during the festive season in the last two months of the year, we believe A&P efforts will be more effective with prospects of on-premise consumption recovering," said the broker. Its fair-value estimate is $1.01.

Airline food and freight services provider Sats shares ended four cents weaker at $4.71 on volume of two million. UOB Kay Hian in a Sept 13 report maintained a "buy" on the stock, saying the risk/reward for it is tilted towards the upside over the next two quarters.

"We expect Sats to secure inflight catering and ramp-handling contracts from Qantas and likely from Norwegian Air too. We expect Q2FY17 earnings to rise quarter-on-quarter from the inclusion of Jetstar Asia's catering contract and the ground-handling contract for AirAsia," said the broker, as it set a target price of $5.40.

Bank of America Merrill Lynch, in its Sept 15 economic weekly, said it is concerned that financial conditions will eventually tighten as other central banks join the Fed in withdrawing monetary accommodation.

It said: "This risk would be exacerbated by leadership changes at major central banks. Bank of Japan's (Haruhiko) Kuroda and the Fed's (Janet) Yellen could be replaced by less dovish policymakers next year

"A sharp rise in DM (developed markets) term premia would likely lead to portfolio outflows from EM (emerging markets). In this manner, financial tightening from the QE (quantitative easing) unwind could pose a risk to not only the economies where accommodation is being removed, but also the global growth outlook."

Goldman Sachs Asset Management in a weekly update said that it is overweight EM currencies and overweight US dollar versus other DM currencies.

It said: "We continue to add exposure to EM currencies versus the US dollar. Our conviction in this view has strengthened due to ongoing evidence of strong, accelerating and broad-based global growth, a rise in commodity prices which has supported the currencies of commodity-oriented EM countries and due to expectations for a gradual monetary tightening path in the US."

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