STI closes 0.6% down as negative sentiment ruled markets over China data, US Fed rates

SINGAPORE - Negative sentiment over the latest slew of soft Chinese economic data and uncertainty over whether the US Federal Reserve will raise rates this week sidelined investors, while the ruling party's landslide victory didn't translate into optimism for local shares.

The benchmark Straits Times Index slipped 0.5 per cent at the opening bell on Monday - the first trading day after the general election (GE) - and stayed in negative territory for the most part, closing down 16.56 points or 0.6 per cent to 2,871.47.

Laggards include DBS Bank, which lost 0.6 per cent or 10 cents to S$17.62, Noble Group, which shed 6.9 per cent or 3.5 cents to 47.5 cents, and City Developments, which fell 2 per cent or 17 cents to S$8.18.

Penny plays ruled in a thin trading day, with SinoCloud Group plunging 33.3 per cent or 0.1 cent to 0.2 cents, with 133.6 million shares traded; Ezra Holdings slipped 3.2 per cent or 0.4 cent to 12.3 cents, with 85.2 million shares traded and airport solutions provider Stratech Group plunging 14.5 per cent or 0.8 cent to 4.7 cents, with 53.4 million shares traded.

"If before the GE there was no rally, then after GE, there is also no rally. Most people expected the PAP to win. The question is by what margin and how many seats the opposition will get. The stock market will react only if there is a real possibility of political instability, which there isn't. Markets tend to be globally driven, not by local politics," remisier Desmond Leong said.

Investors instead were focused on this week's long-awaited and key Fed rate decision with sentiment cautious ahead of the announcement on Friday morning, Singapore time. The decision is seen as too close to call with economists and pundits split down the middle on whether the Fed will raise rates on Sept 17.

Citi Research said in a note on Monday volatility is expected to remain high across asset classes as investors await the US Fed decision.

"Low market expectations of a September Fed lift-off has helped risk assets over last few sessions. But, it is unlikely that market positioning will turn significantly bullish ahead of the event," Citi said.

Remisier Alvin Yong said: "Participants are mentally prepared for a rate hike this week, so if it doesn't happen, it's a bonus. If it happens, the market may take it in stride," he said.

Meanwhile, China's fixed-asset investment rose at the slowest pace in 15 years and industrial production continued to drift lower, while August retail sales topped projections, reports published over the weekend showed.

Despite soft Chinese economic data reinforcing fears of a harder than expected landing, traders say this is offset by hopes that Beijing will likely implement further stimulus measures to support the economy including more reserve requirement ratio cuts and lending rate cuts.

"However, more monetary policy easing is likely to be targeted at keeping liquidity conditions at a comfortable level, rather than providing more direct impulse to economic growth," IG Market analyst Bernard Aw said.