Asian markets rise over positive sentiment after US Fed hike, STI closes 20 points up

SINGAPORE - Singapore shares rose in line with the rest of Asia after investors took the widely expected first US interest rate hike in nearly a decade as a sign that the US economy is strong enough to withstand higher borrowing costs.

The US Federal Reserve raised interest rates by 0.25 percentage points - its first increase since 2006 - taking the the Federal Funds rate, or range of rates banks offer to lend to each other overnight - to between 0.25 per cent and 0.5 per cent.

"It's not really a big deal because the move was long expected and already priced in by the market," remisier Alvin Yong said.

"With the Fed Funds rate targeted at 1.3 per cent next year, that implies there may be four more rate hikes. But this is data dependent, meaning future rate hikes will depend on US unemployment and inflation data."

The Straits Times Index rose 20.26 points or 0.71 per cent to 2,861.18, led by gains in OCBC, DBS, UOB and Singtel. OCBC climbed 0.9 per cent or 8 cents to $8.73, UOB edged up 0.2 per cent or three cents to $19.11, and DBS was up 0.5 per cent or 8 cents to $16.59. Singtel gained 0.5 per cent or two cents to $3.78, with 33.8 million shares traded.

Banks were buoyed by the rate hike move, as their net interest margins are expected to improve. But a potentially flat economy might limit loans growth to the mid-single digits at best, Mr Kelvin Tay, regional chief investment officer at UBS Wealth Management, said.

"The general economic malaise in the region could perhaps affect the non-performing loans negatively too, especially for banks with greater exposure to Malaysia, Thailand and Indonesia," he warned.

"Asset quality concerns are likely to linger, as there appears to be a wide gap in terms of market perception and bank managements' confidence in the asset quality of their loan books," Mr Tay said.

The slump in commodities following the Fed move weighed on Golden Agri-Resources, which fell 1.5 per cent or 0.5 cents to 32 cents, with 35.1 million shares traded.

Oil related counters took a hit as oil prices plunged in the wake of the rate hike. Rex International slipped 3.4 per cent or 0.3 cents to 8.5 cents, with 19.5 million shares traded; Ezion dipped 0.8 per cent or 0.5 cents to 59.5 cents, with 13.4 million shares traded. Loyz Energy fell 3.6 per cent or 0.2 cents to 5.4 cents, with 11.1 million shares traded.

Meanwhile, property investment and development firm IPC Corp jumped 7.7 per cent or 14.5 cents to $2.03, following news that it completed a 14.9 billion yen sale of seven hotels in Japan.

gleong@sph.com.sg