Asian markets mixed, STI down as Fed Reserve rate hike announcement awaited

SINGAPORE - The Asian markets put up a mixed showing on Wednesday as investors counted down to the widely expected Federal Reserve rate hike announcement Thursday morning.

Ahead of the event that may trigger knee-jerk reactions, Singapore's benchmark Straits Times Index closed down 1.17 points or 0.04 per cent at 2,954.06. Total market volume also cooled further, with only S$884.1 million worth of shares traded.

Other markets that ended in the red included Shanghai, down 0.46 per cent, and Kuala Lumpur, down 0.12 per cent. Tokyo managed to eke out a 0.02 per cent gain and Hong Kong was up 0.04 per cent.

Market watchers reiterated that investors are looking at more than just the rate hike announcement - what Fed chairwoman Janet Yellen will say of economic outlook is more important.

"Consensus shows two rate hikes in 2017 and three in 2018, and ultimately it will depend on the US economy and global markets. In the event that the (Fed) statement is more hawkish than expected, the dollar will likely get a boost," CMC Markets analyst Margaret Yang said. A stronger greenback may have several market implications, such as weaker commodity prices and capital outflow from the Asian stock markets.

"However, based on past experience, Ms Yellen might maintain a cautious view, until solid economic data provides more evidence to support future rate hikes," Ms Yang added.

Meanwhile, rising interest rates are also seen as a long term boon for banks, which will be able to enjoy better margins.

Sure enough, the shares of all three local banks rose yesterday, part of the nine STI stocks that ended higher in an otherwise tepid session.

DBS added 16 cents or 0.9 per cent to S$17.96, OCBC put on five cents or 0.54 per cent to S$9.24, and United Overseas Bank closed up four cents or 0.19 per cent at S$21.20.

The trio were also under the market spotlight as Moody's downgraded their baseline credit assessments from aa3 to a1 to reflect uncertainties around asset quality and profitability.

"The ongoing credit challenges that these banks face at home and broadly in Asia - where they have around 50 per cent of their loans - have translated into higher problem assets this year, and Moody's expects further negative pressure on asset quality in 2017," the rating agency said.

But Moody's stressed that the three banks still maintain very robust credit metrics.

Other STI gainers included Thai Beverage, which rose two cents or 2.38 per cent to 86 cents, and Genting Singapore, up one cent or 1.03 per cent to 98.5 cents.

On the other end of the benchmark, Ascendas Real Estate Investment Trust closed down seven cents or 2.93 per cent at S$2.32. CapitaLand Mall Trust dropped 1.5 cents or 0.77 per cent to S$1.93, and CapitaLand Commercial Trust eased two cents or 1.3 per cent to S$1.52.