Straits Times Index soars to 21-month high

A rush into the banks yesterday helped propel the Straits Times Index 35.67 points or 1.1 per cent up to a 21-month high of 3,211.11.

The broad market, however, was weak with 208 rises versus 280 falls, although turnover was a robust 2.4 billion units worth $1.5 billion.

The push on banks came after United Overseas Bank reported its Q1 results on Friday and DBS Bank on Monday, the former registering a 5.4 per cent year-on-year increase in net earnings to $807 million and the latter a 1 per cent rise to a record $1.2 billion.

In response, UOB jumped $1 or 4.6 per cent to $22.80 on volume of 7.9 million while DBS gained $0.51 or 2.6 per cent at $19.86 with 10.2 million traded. OCBC Bank joined in with a 1.8 per cent gain.

As a result, the FTSE ST Financial Index gained 1.5 per cent to close at 888.08.

Observers noted that the quality of the banks' earnings appeared sound - especially loan growth.

RHB noted that bank lending expanded 5.8 per cent year-on-year in March, accelerating from a 3.5 per cent advance in the month before.

"Loan demand from businesses accelerated to 7.2 per cent year-on-year in March from 4.5 per cent in the previous month. Loans extended to the manufacturing cluster gained 1 per cent, a rebound from the 2.1 per cent dip in the month before," said RHB.

"Meanwhile, financial institutions, general commerce, transport storage and communications, business services, professional and private individual loans also picked up. This reflects a broader pick-up in economic activities."

Bank of America Merrill Lynch said one of the most robust takeaways from the International Monetary Fund meetings was that investors are bullish on emerging markets (EMs) and do not seem concerned about global risks.

"We remain constructive as EM fundamentals are well grounded but turn more cautious as the rally in EM is entering a maturing phase," it said.

For Singapore, BoAML said it expects economic momentum to gradually improve alongside an expected recovery in global demand for the rest of the year.

"As such, we are comfortable in maintaining our full-year growth forecast at 2.1 per cent.

"Our forecasts continue to be at the lower end of the Government's medium-term potential estimate of 2 per cent to 3 per cent, but above the midpoint of the official 2017 forecast of 1 per cent to 3 per cent," it added.

Nomura, in its Asia Strategy, said the most important question for the direction of Asian equities is how much momentum this earnings recovery really has.

"So far, we have witnessed a cyclical recovery in energy, materials and tech sectors, and their reversion to pre-2015 trend looks mostly complete," said Nomura.

"The biggest economic contributor to this recovery has been a stronger-than-expected turnaround in China's nominal growth, helping exports, commodity prices and tech demand.

"But this may not last, as fiscal support to the economy appears (to be) already waning and the authorities are keen on curbing financial sector excesses.

"In addition, a variety of structural impediments will keep Asian earnings upside in check, including the build-up of leverage, little evidence of pent-up demand for consumption and lack of strong upcoming private investment."

Natixis Global Asset Management chief market strategist David Lafferty said in his assessment of US President Donald Trump's first 100 days in office that perhaps, candidate Trump is starting the natural transition to President Trump.

"But investors should remember what Mr Trump is - an easily agitated political novice with an itchy Twitter finger," said Mr Lafferty.

"Some lions can be trained to obey and even learn new tricks. But that doesn't change the nature of what a lion is - an inherently unpredictable animal."

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