STI lifted by higher oil prices, blue chips

Higher oil prices after four of the world's largest producers agreed to freeze output and a rally in Chinese equities gave fresh impetus to the nascent rally in Singapore shares.

Bargain hunting in blue chips helped lift the benchmark Straits Times Index 1.41 per cent or 36.68 points to 2,644.58. DBS Group Holdings rose 2 per cent or 27 cents to $13.68 and OCBC Bank climbed 1.7 per cent or 13 cents to $7.77.

Singtel added 1.6 per cent or six cents to $3.80 while ComfortDelgro gained 4.9 per cent or 14 cents to $3.01.

Higher oil prices also helped fuel investor appetite for oil-related and commodities counters. Keppel Corp rose 3.6 per cent or 18 cents to $5.20. Wilmar International put on 3.3 per cent or 10 cents to $3.10.

Brent futures pared gains after Qatar said four of the world's largest producers - Saudi Arabia, Russia, Qatar and Venezuela - agreed to freeze output at January levels, provided that other major exporters followed suit.

But Brent was up at US$34.20 a barrel while US crude futures were up at US$30.07, off the day's high of US$31.53.

Kelvin Tay, regional chief investment officer at UBS Wealth Management, told The Straits Times yesterday that market volatility would recede only when oil prices stabilise, as around 10 per cent of the STI is exposed to the commodities and offshore marine sectors.

"Potential pitfalls continue to loom in the offshore and marine sector, where operating conditions have worsened amid a further weakening of oil prices and the prospect of a major customer filing for bankruptcy protection, pointing to further downside risks to its order books," he said.

But he sees current weak conditions as a buying opportunity as the "market is now trading at a 10-year low".

"The banking sector is also being sold off due to concerns that loan exposure to the oil-and-gas and commodity companies could potentially see a spike in non-performing loans.

"We see bottom-fishing opportunities in banks, which have fallen below book value and are trading at crisis valuations. A slower-than-expected rise in non-performing loans could catalyse a re-rating for share prices," Mr Tay said.

OCBC is releasing full-year 2015 results this morning.

United Overseas Bank shares closed 0.2 per cent or four cents lower at $17.81. DBS Group Research, which has a hold call on the bank, said "over time, regionalisation beyond ASEAN would need to improve and a stronger traction in non-interest income away from loan-related activities (is needed) to prompt a re-rating for the bank".

Sembcorp Marine shares jumped 7.5 per cent or 11 cents to $1.57 on speculation of potential privatisation by Sembcorp Industries. But DBS, which has a fully valued call on the counter, said that is "unlikely in (its) opinion".

"We believe the more likely scenario would be the merger of Keppel Offshore & Marine and SembMarine," it added.

gleong@sph.com.sg 

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