Wary trading but STI at 18-month high

The Straits Times Index managed a 13.8-point rise to an 18-month high of 3,147.15 yesterday despite a slide in oil prices to a three-month low.

Trading, however, was cautious ahead of this week's Federal Open Market Committee (FOMC) meeting at which an interest rate hike is a near certainty - volume was average at 2.2 billion units worth $1.15 billion. The advance-decline score, however, was almost even at 244-243.

There was a noticeable loss of upward momentum in property stocks yesterday following the large push on Friday that came when the Government announced a partial loosening of restrictions on the sector.

CapitaLand, Hong Fok and Wing Tai traded in the red for most of the session, UOL closed just $0.02 higher at $6.94 and only City Developments kept up its Friday pace when it rose $0.35 or 3.4 per cent to $10.50 on turnover of 5.3 million.

The FTSE ST Real Estate Index managed a 0.5 per cent rise.

OCBC Investment Research said it thinks the property tweaks will be marginally supportive of still-declining home prices.

It said: "In our view, the timing of these reversals was not a complete surprise.

"As we have been highlighting to our clients over the last few months, the Government has over the last three cycles a near unbroken record of actively reviewing property legislations against its goals of price stability, and historically began reversing curbs after home prices had dipped between 8 per cent to 17 per cent from the peak ...

"We are currently down 11 per cent from the last peak over the last 13 quarters."

Maybank Kim Eng said relief from changes to the seller's stamp duties could nudge the marginal buyer concerned with potential penalties to buy a new property and this could have positive impact on sales volumes and prices.

It added: "However, we believe the market should curb enthusiasm as home-buying demand will remain constrained by the additional buyer's stamp duty, loan-to-value ratio and total debt servicing ratio requirements."

Nomura said it thinks there might be upside risk to the banks' guidance of mid-single-digit loan growth given the property announcement.

"DBS, OCBC Bank and United Overseas Bank recently introduced their own versions of mortgage loans that charge as low as 55 bps on building-under-construction properties," it said.

"We believe this is to spur property market activity, especially with those that have been standing on the sidelines, waiting for a catalyst to enter the market."

At Goldman Sachs Asset Management's (GSAM) Emerging Markets (EM) roundtable held here last week, Mr Prashant Khemka, GSAM's chief investment officer of EM equities, said part of his positive outlook for EM is tied to the outcome of the US election and the outlook for the US economy.

He said: "People are more positive about the US economy than they were prior to the election. If we take that as the base case, this is as positive for the rest of the world given the size and scale of the US economy.

"The impact of faster economic growth will far outweigh the negatives of increased protectionism."

Rabobank, in its FOMC preview "Have your free lunch and eat it too", noted that the Fed seems to have accepted the rosy economic outlook, but said despite the upbeat confidence indices, the current forecast for US Q1 GDP growth - published by the Atlanta Fed - has fallen to 1.2 per cent as at March 8.

It said: "If we are right in our assessment that the market rally is overdone and that it will be difficult for US President Donald Trump to deliver on his promises, then the Fed joining the party could make the bubble even more dangerous, ending in an even larger reversal."

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