STI down 9.41 points on weak China data

There was no change yesterday to the pattern of trading established over the previous three sessions here this week.

Prices drifted for most of the day as traders ignored yet another all-time high on Wall Street, with the Straits Times Index (STI) shifting uneasily within a tight band before finishing at 3,220.95 for a net loss of 9.41 points and a general air of lethargy shrouding the entire day's action.

This time, China's slowdown was cited as a possible reason after the release of economic figures, such as the weakest factory output in nine months and a disappointing retail sales report.

As a result, the Hang Seng Index finished 0.4 per cent down, while the China Enterprises Index fell 0.8 per cent. The Dow futures, in the meantime, traded slightly in the red.

Turnover here was 2.1 billion units worth $1.2 billion and, excluding warrants, there were 148 rises versus 250 falls.

Banks have been the prime drivers of the index throughout most of the past two years but the upward momentum in the sector appears to have stalled in recent days, most probably as traders re-evaluate the conventional wisdom earlier this year that US interest rates will be raised one more time before year-end.

In the US federal funds futures market, the implied probability of no rate hike in December is now 61 per cent and an increasing number of analysts believe the Federal Reserve will not hike until next year.

If US rates are not raised then, according to current thinking, neither will rates rise here, in which case bank earnings may not be as good as anticipated. Among the banks, DBS Bank ended $0.03 down at $20.35 with 3.7 million done.

OCBC Investment Research said the recent weakness in the stock has presented investors with a buying opportunity.

"DBS' share price has dropped from a high of $22.25 to a low of $20.38 (on Wednesday), a decline of 8.4 per cent," said the broker.

EQUITY STRATEGY REPORT

"This is higher than the STI or its peers. We expect the strong performance of global and regional markets in 3Q17 to translate into better non-interest income.

"The addition of ANZ will also drive its wealth business in 2018, both in terms of assets under management and revenue."

Its fair value for DBS is $22.50.

In the electronics sector, shares of Venture Corp fell $0.55 or 3.3 per cent to $16.20 on volume of 1.5 million.

The counter had jumped $1.50 or almost 10 per cent on Wednesday, drawing a query from Singapore Exchange.

Venture replied that other than news which had already been released, it did not know of reasons for that jump.

In yesterday's Equity Strategy report, Bank of America Merrill Lynch said if history is a guide, emerging market (EM) equities rise 230 per cent on average, in bull markets that last about 42 months, at three times the pace of the rise in the S&P 500 in the same period.

"EM equities are already up 60 per cent since January 2016 in this bull market and a potential doubling is likely in the next two years to mirror the trajectory of prior bull markets," it said.

"Global investors have largely missed the 27 per cent outperformance of EMs versus global equities since January 2016. A substantial overweight in Asia/EM equities is warranted."

As for the way markets have been able to ignore the North Korean threat, Indosuez Wealth Management's chief economist Marie Owens Thomsen, in her Sept 13 Macro Talking Points, said this can be explained by a combination of factors, basically summed up by the persistent sweet spot in the macro-economic environment: sustained (but not accelerating) GDP growth, low inflation, low interest rates, low(ish) US dollar, and still very accommodative monetary policies.

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