Markets Insight

Fed rate hike remains traders' major worry

A clearer picture on where rates are headed should emerge after the Fed releases the minutes of its April meeting on Thursday.
A clearer picture on where rates are headed should emerge after the Fed releases the minutes of its April meeting on Thursday.PHOTO: REUTERS

Market also expects 2 companies to announce plans to go private

The trading week ahead looks set to be dominated yet again by the United States Federal Reserve, with market participants sidelined ahead of further clues on the next rate hike from at least four officials and the release of minutes of the April meeting.

The local corporate earnings season continues to be in full swing, with the performance of small and medium-sized enterprises under scrutiny. The fourth-quarter earnings report of Global Logistic Properties, due on Thursday morning, is among those being watched.

Traders are also watching for announcements this week from at least two companies widely speculated to be privatisation targets. Eu Yan Sang, which called for a trading halt on Tuesday, is rumoured to be heading for a delistinggiven the challenging outlook in the retail sector and depressed valuations.

Logistics firm CWT is supposedly in talks with Chinese conglomerate HNA Group over a potential sale of a controlling stake in a deal worth around US$1 billion (S$1.37 billion). Reports say a deal could be announced as early as next week.

So far, the results of several blue chips including Singapore Airlines and Wilmar International have not been up to snuff, said Mr Lee Yu Sheng, a dealer with Maybank Kim Eng. This could lead to more analysts revising downwards full-year estimates for local corporate earnings, he said.

Data as at April 20 from EPFR Global, which tracks mutual fund flows, shows Singapore has sustained equity outflows since last September - a factor behind the thinning liquidity.

Equity funds bought a net US$154 million worth of Singapore equity from January to last week, against US$468 million in the same period last year, Mr Cameron Brandt, EPFR director of research, told The Straits Times last week.

Explaining the sharp drop in capital flow into Singapore, he noted that the local market has "underperformed compared with its regional peers and the emerging Asian markets", he said. "Fund managers appear to be reallocating to more dynamic markets rather than running for cover as they did during the 2008 financial crisis," he added.

Also weighing on market sentiment are signals from more US central bank officials who appear to be in favour of a rate hike sooner than later. Last week, Boston Fed president Eric Rosengren and the Kansas City Fed's Esther George, both voters on the Federal Open Market Committee, said that the central bank risks stoking an asset bubble by delaying action for too long.

The Fed will also release the minutes of its April meeting on Thursday morning, which will give a clearer picture on where rates are likely to be headed.

Meanwhile, Genting Singapore shares may see selling pressure this week after its first-quarter earnings missed forecasts due to "greater than expected bad debt provisions" of $92.4 million.

Gaming research firm Union Gaming said it expected bad debt provisions to continue but did not expect it to be so high.

"We are significantly lowering our 2016 earnings estimate to account for operating results, (which also takes into account) a more pessimistic outlook on bad debt provisions over the next two quarters," Union Gaming Research said.

A version of this article appeared in the print edition of The Straits Times on May 16, 2016, with the headline 'Fed rate hike remains traders' major worry'. Print Edition | Subscribe