US interest rate hike moves closer

The Straits Times Index yesterday tracked movements in the Dow futures, eventually ending a net 0.83 point lower at 3,121.51. Turnover dropped sharply from last week's S$1.5 billion average to 2.6 billion units worth S$1.08 billion and excluding warrants, there were 234 rises versus 256 falls.

At 5pm, the Dow futures stood 66 points weaker, possibly as the market comes to grips with rising US interest rate expectations. In the federal funds futures market, the implied probability of a 25 basis point interest rate hike at the March 14-15 Federal Open Market Committee meeting is now 96 per cent compared to 90 per cent last Friday and 40 per cent last Monday.

The prospect of higher interest rates has fuelled a rally in the banks on the assumption that their earnings will improve. Macquarie Warrants said in its daily newsletter that Macquarie Equities Research or MQ has a positive view of the Singapore banks, with DBS as the top pick with a target price of S$21.

"MQ likes OCBC (S$9.51, Outperform, target: S$10), and is neutral on UOB (S$21.55, Neutral, target: S$20.55). MQ sees further share price upside from asset quality surprising on improving trends, improvement in global sentiment, and rising interest rates driving net interest income."

MW also said that based on SGX data, net buying of financials was marginally positive at +S$55 million in February 2017. "This was mainly from the net buying of OCBC (+S$63 million). On the other hand, property and Reits registered the first net buying since Sept 16."

"Institutions were net sellers in industrial and healthcare stocks for the month. Overall, MQ continues to expect financials to benefit from any reversal of the S$3 billion net outflows since December 2015 from Singapore."

In the property sector, shares of Bukit Sembawang Estates shot up, drawing a query from the Singapore Exchange (SGX) in the morning. It closed S$0.88 or 16.4 per cent up at S$6.25. The company replied a short while later, suggesting that a March 2 DBS Group Research report might have had some part to play.

"This report was also quoted both in The Straits Times and The Business Times on March 3, 2017. We believe this is the possible explanation for the unusual price movements of (Bukit Sembawang's) share price since March 2, including today's market, March 6, 2017," said the company.

It added that the DBS report was written "without any prior meeting or knowledge or consultation" with the company or its officers. Although the report did not carry an investment recommendation, it said that Bukit Sembawang could be an attractive takeover target.

In the second line, shares of ISR Capital resumed trading after a suspension by the SGX on Nov 27, 2016, crashing S$0.087 or 69 per cent to S$0.04 on volume of 408 million.

At that time, the exchange said that the suspension was to safeguard the market's interests as there were circumstances that prevented trading on an informed basis. Since then, it has emerged that John Soh, who is alleged to have been one of the manipulators of Asiasons, Blumont and LionGold, is also being investigated for allegedly manipulating ISR Capital, as well as being involved in the company's management.

In announcing that the suspension would be lifted yesterday, SGX last week also placed a "Trade with Caution" warning on the stock.

DBS chief investment officer Lim Say Boon, in his "No Policy Specifics? No problem", said that the market's reaction to an impending US rate hike was more a case of a "glass half-full" than a "glass half-empty".

"Should the Fed move at the next meeting, it would be perceived as a sign of confidence in the US economic recovery," he noted.

Should the Fed move... it would be perceived as a sign of confidence in the US economic recovery.DBS' Lim Say Boon

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