Singapore stocks slip on Fed decision but losses capped by China stimulus move

The Singapore Exchange Centre in Shenton Way.
The Singapore Exchange Centre in Shenton Way.PHOTO: ST FILE

SINGAPORE - Singapore stocks suffered a kneejerk fall at the opening bell on Thursday morning (Dec 20) but pared losses within minutes of trading.

At 9am, the Straits Times Index was down as much as 0.56 per cent or 16.98 points at 3,041.67 in line with a weaker Wall Street after the Federal Reserve on Wednesday raised its benchmark interest rate a quarter-point but lowered its projections for future hikes.

But within minutes of trading, Singapore shares pared losses on news that China's central bank unveiled several policy changes on Wednesday aimed at injecting liquidity into the economy.

As at 9.38 am, the STI is up 0.06 per cent or 1.81 points at 3,060.46

Still the rate hike continued to weigh on Asian equities. The US central bank took the target range for its benchmark funds rate to 2.25 per cent to 2.5 per cent. The move marked the fourth increase this year and the ninth since it began normalizing rates in December 2015.

But two hikes are now projected for next year, which is a reduction but still ahead of current market pricing of no additional moves next year.

The language in the post-meeting statement was not entirely dovish, or easy on its outlook for rates. The committee continued to include a statement that more rate hikes would be appropriate, though it did soften the tone a bit.

 
 
 

Equities and oil prices reacted poorly to the Fed forward guidance which suggests that the central bank remains on " auto pilot". Dow futures fell 1.49 per cent overnight, while Nasdaq shed 2.17 per cent.

CMC Markets analyst Margaret Yang said: "Although Wall Street fell sharply overnight, Asian markets are relatively steady because they have already anticipated this outcome, so it's not a big surprise.

"Plus, the already relatively low valuations are cushioning downside for Asian equities. The price to earnings ratio for the STI is about 10 times which is close to a 3 three year low."

Also capping losses, China's central bank announced stimulus measures that include a new lending facility to encourage lending to small businesses. Chinese state media reported that large commercial banks, joint-stock banks and commercial banks in major cities which demonstrate support for the real economy will be allowed to apply for the targeted medium-term lending facility.

"China's monetary stimulus measures could counter the negative impact of the US monetary tightening," Ms Yang said. "That's good news for Singapore, which also follows the Hang Seng and Chinese stock markets."