Singapore joins Asian markets in early sell-off after Fed signals more rate hikes than expected in 2017

Analysts said the market is is unlikely to panic in the wake of the widely expected hike announcement.
Analysts said the market is is unlikely to panic in the wake of the widely expected hike announcement.PHOTO: BLOOMBERG

SINGAPORE - The local market opened lower on Thursday (Dec 15) morning, in a somewhat bearish response after the US Federal Reserve signalled it sees a faster pace of interest rate hikes in 2017.

Singapore's benchmark Straits Times Index started half a per cent down at around 2,940, joining Sydney, Seoul and Kuala Lumpur in an early sell-off. By 9.30am, the STI was down 0.6 per cent at around 2,936.

The US central bank also raised its benchmark federal funds rate to a range of between 0.50 per cent and 0.75 per cent on Wednesday as widely expected. But it was the Fed's projection of three rate hikes next year - more hawkish than the two forecast in September - that contributed to the market sell-off.

US rate hikes have far ranging implications on not just bank rates, but also currencies, corporate financials and commodity prices.

In the rest of Asia, Hong Kong stocks fell 0.7 per cent when markets opened while shares dropped 0.5 per cent in Shanghai and tumbled 0.9 per cent in Sydney.

Tokyo went the other way, climbing 0.6 per cent as the yen fell against the US dollar.

Wall Street overnight saw its biggest percentage decline since before the Nov 8 US presidential election, though the loss was slight compared with gains of last month or so. The Dow industrial average lost 118 points or 0.6 per cent.

However, the market is unlikely to panic, said remisier Alvin Yong.

"Almost all investors know that the hike announcement would come, and those that wanted to take their money off the table probably had done so… If there's further sell-off I expect it to be orderly. In any case the year-end is typically a quiet period," he told The Straits Times.

"While the Fed has come off as somewhat hawkish, Ms Yellen will look at the data before making further decisions in the next meeting in early February," KGI Securities Singapore strategist Nicholas Teo said, referring to Federal Reserve Chair Janet Yellen. 

"The market already had quite a rally before this. Some may think that any sell-off from here on will be a chance to bargain hunt, but unlike events like Brexit or Trump, rate hikes have very tangible and technical influence on financial markets, so you may want to think twice," Mr Teo added.

Although the US central bank gave little indication on Wednesday that the election of Mr Donald Trump had altered its economic outlook, Fed watchers see its guidance being moved by the incoming Trump administration's promises of tax cuts, spending and deregulation that could spur inflation.

In other news, the identity of Singapore's fourth telco was finally revealed, with TPG Telecom winning the spectrum auction, the Infocomm Media Development Authority announced on Wednesday night.

As the sector's competition looks set to heat up, investors turned hesitant on telco stocks. Singtel was down over 1 per cent on Thursday morning to around $3.73, while StarHub pared over 2.7 per cent to around $2.82 by 9.30am.