Cautious rebound of 16.01 points for STI

After dropping 39 points on Tuesday because of a bank-led sell-off, the Straits Times Index (STI) rebounded 16.01 points yesterday to 3,088.48 after US banks pushed Wall Street to a new high overnight following comments from Federal Reserve chair Janet Yellen about the need the raise interest rates soon.

Turnover amounted to 3.3 billion units worth $1.47 billion for an average of $0.44 per unit. Excluding warrants, there were 299 rises versus 187 falls.

A few months ago, comments from Ms Yellen pointing to higher interest rates would have brought on large selling pressure in a market grown used to low rates and easy money.

Now, higher rates are seen as being good for bank earnings, and so there was a rush to buy.

The Dow futures yesterday rose 29 points, indicating a likely positive opening for Wall Street.

Local bank counters however, did not follow their US counterparts, turning in quiet performances yesterday.

All three had been hit after OCBC reported its latest earnings on Tuesday, with DBS's figures due today and UOB tomorrow.

Macquarie Warrants (MW) said Macquarie Equities Research (MQ) still has an "outperform" rating on OCBC with target price of $10.

"MQ is positive on OCBC because they expect: it to continue delivering strong asset quality trends, and therefore to surprise positively on loan loss provisions in 2017; earnings growth to be driven by its strong wealth management platform, supported by inorganic acquisitions; and undemanding valuation multiples and likely sustainable 3 per cent to 4 per cent dividend yield," said MW.

In the property sector, CapitaLand's shares ended $0.03 higher at $3.49 on volume of 12.7 million after the company reported its latest figures.

OCBC Investment Research said it likes that CapitaLand has delivered a balanced set of results in an uncertain environment.

It maintained its "buy" rating with an unchanged fair value estimate of $3.68.

In the second line, the Singapore Exchange queried precision components maker AEM Holdings over the large rise in the latter's shares, as well as RHT Healthcare Trust.

AEM finished the day $0.125 or 11.5 per cent higher at $1.21 on volume of 942,800 units.

RHT plunged to an intraday low of $0.71 before closing at $0.795, a net loss of $0.07 on volume of 22 million.

Mr Rick Rieder, chief investment officer of global fixed income at BlackRock, said the Fed may come to increasingly recognise that it has been behind the curve during this hiking cycle, and markets may not be fully appreciating the potential for an acceleration in rate hiking.

"That said, while risk markets could sell off in a knee-jerk reaction to these moves, we think investors will quickly realise that a more normalised interest rate policy, and one closer to equilibrium, may allow for greater system-wide velocity, which ultimately would be good for both the economy and for risk markets," said Mr Rieder.

Bank of Singapore's chief economist Richard Jerram said because five Fed members are due to be replaced, and if US President Donald Trump fills the central bank with governors who are likely to keep a lid on interest rates, it would be a "dangerous game to play" as undermining the credibility of the Fed would risk a surge in inflation expectations and a sharp rise in bond yields.

"Whether Mr Trump appreciates the danger is unclear - he might be more tempted by the attraction of lower short-term borrowing costs, and unconcerned by any damage to the institution," Mr Jerram said.

sivan@sph.com.sg

This article was first published on February 16, 2017.
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