MARKETS INSIGHT

Dow's late surge may lift buyers

Despite good news from the US jobs report, investors think the Federal Reserve will still delay raising interest rates in the aftermath of Brexit.
Despite good news from the US jobs report, investors think the Federal Reserve will still delay raising interest rates in the aftermath of Brexit. PHOTO: AGENCE FRANCE-PRESSE

Analysts also hope for boost from favourable earnings reports with results season approaching

A stellar American jobs report helped propel the Dow Jones Industrial Average to a rousing finish on Friday, which could put local investors in a buying mood as they start the trading week today.

However, analysts say local stocks will be given a real boost if there are also signs that local corporate earnings are improving.

This week, the second-quarter earnings season begins, with companies including Singapore Press Holdings (SPH) and telco M1 set to report on Friday.

SPH will release its third-quarter results, while M1 will release its second-quarter and half-year results after the market closes on Friday.

Market participants are watching for a possible impact on M1's earnings from new telco operator Circles.Life, a consumer brand of Liberty Wireless, which leases bandwidth from M1 at wholesale rates.

"M1's earnings may surprise on the upside, assuming Circles.Life is able to poach customers from other telcos," remisier Alvin Yong said.

Despite a weaker profit outlook, UOB KayHian said SPH's dividend yield is expected to remain relatively stable at 5 per cent all the way to 2018.

This presents "an attractive yield proposition in the continued low- interest rate environment", UOB KayHian added.

The brokerage, which has maintained a "hold" call on SPH, noted in a report last month that total ad page growth could slow to 0.6 per cent in the third quarter this year because of a sharper-than-expected fall in recruitment and display ads, mitigated by higher classified ads growth.

While tourist arrivals picked up, led by a resurgence in Chinese visitors, a stronger Singapore dollar and the corruption clampdown in China saw tourist spending fall 7.6 per cent in 2015 from the year before. Retailers were affected and ad spend likely fell, UOB noted.

Investors are also likely awaiting the release of bank results, with OCBC Bank and United Overseas Bank scheduled to release their second-quarter and first-half earnings on July 28 before the market opens.

RHB Securities Research, which maintained a neutral call on OCBC, said in a report on Friday that it predicts the bank's net interest margins to stay stable as the United States federal funds rate is expected to rise at a slower rate on account of Brexit, and the Singapore Interbank Offered Rate (Sibor) may stay flat for a longer period. The fed funds rate refers to the rate which banks charge one another to borrow excess reserves.

However, it also warned that Britain's recent vote to leave the European Union could lead to a weaker global economic environment, which would add stress to OCBC's loan book and make it harder for the bank to expand its loan portfolio.

In particular, the brokerage said OCBC's exposure to the oil and gas industry remains challenging, although its other loan segments are still relatively healthy.

"Thus, we expect asset quality in the second quarter to deteriorate only marginally from the first quarter," it added.

On the global front, the robust US jobs data has added some cheer to the market.

Investors are largely brushing off the possibility that the positive report could cause the US Federal Reserve to raise interest rates later this year, as they believe persistent volatility in Brexit's wake will stay the Fed's hand.

US non-farm payrolls rose by 287,000 in June, the US Labour Department said. It was the strongest month of hiring since October last year and came after a shockingly poor May report.

At home, Singapore will report its advance second-quarter gross domestic product figures on Thursday, with the economy expected to expand at a faster pace of 2.3 per cent year-on-year, compared with the first quarter when the economy barely grew.

However, a weaker GDP number may pressure the Monetary Authority of Singapore to ease monetary policy further at the October policy meeting.

A version of this article appeared in the print edition of The Straits Times on July 11, 2016, with the headline 'Dow's late surge may lift buyers'. Print Edition | Subscribe