Banks nudge STI up amid talk of Fed hikes

Possibility of multiple interest rate hikes in US gives traders pause over impact on market

Local shares ended with a slight gain yesterday after another slow session with investors distracted by renewed talk of multiple interest rate hikes in the United States.

The Straits Times Index (STI) added eight points or 0.27 per cent to 3,008.22. Total turnover was just 1.29 billion shares worth $899.4 million traded.

A similar lack of conviction was evident elsewhere with Shanghai dropping 0.38 per cent and Hong Kong slipping 0.21 per cent although Tokyo gained 0.94 per cent on a weaker yen.

Aside from caution over Mr Donald Trump's upcoming presidency - which left Wall Street down for four straight days - the overnight comment by Federal Reserve chair Janet Yellen that there may be "a few" rate hikes every year until 2019 gave investors something to mull over.

The impact of US rate hikes on Singapore stocks could play out in several ways. Local banks should reap better margins, but the earnings boost will be limited by lower profits amid a slower economy.

The three lenders were among the 16 STI stocks that rose yesterday. DBS closed up eight cents or 0.44 per cent at $18.28, OCBC was up seven cents or 0.76 per cent to $9.30 and United Overseas Bank rose two cents or 0.10 per cent to $20.80.

Sembcorp Industries was among the gainers, up four cents or 1.30 per cent to $3.12, following news that it has struck a deal with Myanmar's energy ministry to build and operate a US$300 million (S$428 million) Mandalay power plant.

CapitaLand also rose, led on by news of overseas opportunities. The developer announced this week that it has reached a conditional agreement to acquire a prime site in Ho Chi Minh to build its first international grade A office tower.

It put on six cents or 1.92 per cent to $3.18. OCBC analyst Eli Lee gave CapitaLand a buy call and a $3.68 fair value: "We like that the group continues to diversify its portfolio geographically with this acquisition, particularly given the strong outlook for office demand in Vietnam."

StarHub led the eight STI stocks that closed in the red, dropping six cents or 1.94 per cent to $3.03, while ComfortDelGro fell two cents or 0.81 per cent to $2.45.

Other losing blue chips included Wilmar International, down three cents or 0.78 per cent to $3.82, and CapitaLand Mall Trust, dropping 1.5 cents or 0.76 per cent to $1.97 .

DBS analyst Paul Yong said: "With the reality of interest rate hikes nearer, we prefer non-Reit (real estate investment trust) yield plays... that are better insulated from higher interest rates."

The firm singled out Venture, Sheng Siong and Katrina group.

Supermarket chain Sheng Siong rose half a cent or 0.54 per cent to 93 cents, while electronics firm Venture Corp pared four cents or 0.41 per cent to $9.80.

Katrina Group, in the food and beverage industry, added half a cent or 2.13 per cent to 24 cents.

A version of this article appeared in the print edition of The Straits Times on January 20, 2017, with the headline 'Banks nudge STI up amid talk of Fed hikes'. Subscribe