Markets up ahead of Fed's meeting

The Straits Times Index (STI) closed higher yesterday as traders continued to buy in anticipation of a "relief rally" should the United States Federal Reserve keep interest rates unchanged at its Federal Open Market Committee meeting.

The Fed's policy meeting has been the key focus for global investors for weeks as bank policymakers have to weigh a healthy US recovery with a slowdown in overseas economies as well as the recent turmoil unleashed by fears over China.

However, China's crisis and its government's ability to control a sharp slowdown in the world's number two economy continue to drag on sentiment, with Shanghai tumbling again.

"It's hard to recall an event given so much attention from market players, the implications are far reaching and history provides absolutely no guide," said Chris Weston, chief markets strategist in Melbourne at IG, referring to the Fed decision.

The STI rose 27.07 points to 2,895.81 yesterday. Turnover was in line with recent soft-to-mediocre averages at one billion units worth $1.2 billion and, excluding warrants, there were 221 rises versus 161 falls.

Overall, trading lived up to prior expectations - cautious and narrowly focused as players waited to see whether the Fed would raise rates or postpone the decision until December or even later.

Among the STI gainers was Singtel, with a $0.03 rise to $3.72 on a volume of 22.2 million. Nomura in a report yesterday reaffirmed its "buy" on the stock, pointing out that although for the year to date Singtel has fallen only 5 per cent versus the index's 15 per cent, from its peak, the telco is down 17 per cent versus the STI's 18 per cent and that short selling of Singtel has picked up in recent weeks.

Nomura said Singtel's core trends are resilient and even improving in almost all of its markets with underlying growth of 3 to 11 per cent, and although foreign exchange will be a drag, free cash flow is better hedged and stable. Its target price is $4.30.

Elsewhere, Asian traders remained broadly optimistic leading up to yesterday's crucial US interest rate decision, with most stock markets and higher risk assets extending recent gains as part of another global rally.

An upbeat mood across global exchanges has seen shares rise for most of this week, with US and European dealers enjoying two days of rallies.

In New York the Dow, S&P 500 and Nasdaq all tacked on healthy gains, while London and Paris were more than 1 per cent higher.

Yesterday, Tokyo ended 1.43 per cent higher while Sydney tacked on almost 1 per cent. Seoul, Wellington and Taipei also ended strongly.

However, Shanghai closed down 2.1 per cent - it surged almost 5 per cent on Wednesday after losing around 6 per cent in the previous two sessions - and Hong Kong finished 0.51 per cent lower in late trade.

Shanghai surged more than 150 per cent in a year before June 12, after which it plunged on fears of high prices and the state of the Chinese economy.

While the Fed is expected to lift rates by year end, global markets have moved broadly higher in the past few sessions, with economists predicting the Fed will stand back from moving this month, taking into account the recent strife in equities.

Economists warn a rise now could severely hurt the struggling world economy, and especially damage emerging markets as investors withdraw cash and turn to the US for better and safer returns.

This article by The Business Times and AFP was published in MyPaper, a free, bilingual newspaper published by Singapore Press Holdings.

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