Wall St, banks are week's main drivers

The main driving forces this week were Wall Street and movements in the three local banks.

The Dow Jones Industrial Average crossed 22,000 for the first time on Wednesday and added to its gains on Thursday, its seventh consecutive all-time high that came despite news that Special Counsel Robert Mueller is convening a grand jury in his investigation into Russia's involvement in the US election last year.

With the VIX Index that measures the options market's expectations of future volatility hovering at very low levels, Wall Street's relentless push to new highs has given investors confidence to buy and keep buying, notwithstanding the reality that central banks everywhere seem ready to start normalising interest rates.

Here, banks - in particular DBS and OCBC - have once again been the main drivers of the Straits Times Index (STI).

Yesterday, weakness in all three meant that the STI nursed a 16.4-point loss at 3,326.52, a fall that saw the STI drop about four points for the week.

Turnover yesterday was 1.8 billion units worth $1.3 billion. Excluding warrants, there were 215 rises versus 243 falls.

DBS's $0.59, or 2.7 per cent, fall to $21.49 came with 8.6 million shares traded after the bank reported an 8 per cent rise in net profit to $1.14 billion and a 4 per cent rise on first-half net earnings to a record $2.35 billion.

GROWTH

OCBC Investment Research noted that DBS' management is guiding for mid-single digit loan growth this year and for H2 2017 income growth to be in the mid-single digit region.

"Meanwhile, there could be further deterioration in O&G (oil and gas) sector collateral value resulting in further provisions," it said.

"Management is aiming to hold cost-income at 43 per cent.

At current price, we are maintaining our 'hold' rating even though our fair value estimate has been raised to $22.50. OCBC Investment Research on DBS

"Its share price has done well this year, up 25 per cent year-to-date. At current price, we are maintaining our 'hold' rating even though our fair value estimate has been raised to $22.50."

RHB placed a "neutral" recommendation on DBS with a target price of $20.65.

Among the other developments of note during the week was a fresh critical report by Iceberg Research on Noble Group issued on Thursday that once again questioned the latter's financials while also criticising the role of local regulators; continued activity in the shares of Rowsley after recent news that large-scale healthcare assets are to be injected into the firm; and a re-rating of shipbuilding firm Yangzijiang.

PhillipCapital noted that the STI was up 3.2 per cent.

"We remain Neutral.

"We leave our STI target unchanged at 3,270 (15x FY17e P/E)," it said.

"That said, we see upside risks as the macro environment has panned out far better than expected. Call it Goldilocks or nirvana; macro indicators show that global economic growth picked up pace in June and inflation is trending lower."

In its technical analysis of the STI, PhillipCapital said with the recent bullish breakout above 3,184, it expects the index to resume moving back into the uptrend where it seeks to form the next higher high and higher low formation.

"Some targets on the upside are the 3,387 resistance area followed by 3,458. On the downside, the crucial area to watch is the 3,189 previous range low as the break below the 3,274 range low would adversely shift the sentiment to the downside," it said.

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