Dovish Fed Reserve give regional markets a boost, STI closes 36 points up

SINGAPORE - The banking stocks are emerging as a darling for investors in Singapore, as the local market surged on Federal Reserve's expectedly dovish rate decisions.

DBS, United Overseas Bank and OCBC led the 24 gainers on the benchmark Straits Times Index, which shot up 35.96 points or 1.26 per cent to the highest since Dec 31 at 2,880.17, part of the regional rally following the Fed's announcement on Wednesday (March 16) to maintain the current interest rate.

DBS put on 37 cents or 2.41 per cent to S$15.74, UOB rose 41 cents or 2.18 per cent to S$19.23, and OCBC closed up 14 cents or 1.56 per cent at S$9.09.

While a delayed Fed hike means that banks will not get their interest margin boost, the trio will always benefit from improved confidence, KGI Fraser Securities analyst He Yuxuan told The Straits Times.

"The positive sentiment is boosting blue chips across the board, and banks are not going to miss that lift," he said.

"But at their core the banks are also safe plays. Their price to book ratios are currently still around one, compared with the 1.3 to 1.4 range at the end of last year, so their prices still have some upside. Their dividend yields also remain attractive."

Alongside the banking stocks, Sembcorp Industries and Sembcorp Marine also rose, with Sembcorp Industries rising 10 cents or 3.28 per cent to $3.15, while Sembcorp Marine gained 4.5 cents or 2.68 per cent to S$1.725. Keppel Corp closed up 10 cents or 1.67 per cent at S$6.08.

Hope for a coordinated freeze to oil output is mounting as major producers agreed this week to meet and discuss the issue in Qatar next month. Crude oil benchmark Brent futures have since recovered slightly to above US$41 per barrel.

On other end of the spectrum, only four blue chip stocks fell on Thursday, with Thai Beverage dropping 1 cent or 1.34 per cent to 73.5 cents.

Local shares still have some spring in their heels, remisier Alvin Yong believes.

"For now, I haven't seen my clients rushing back to buy, but I think the index has a chance to touch 3,000 by the end of June, even though it won't be a straight line recovery.

"Investors searching for stocks to leverage on that rebound can look for companies with a low debt gearing and a positive cash-flow while trading at below book value," Mr Yong said.

In other regional markets, the Fed rally pushed Shanghai up by 1.20 per cent while Hong Kong gained 1.21 per cent. Kuala Lumpur rose 0.58 per cent and Sydney closed up 0.96 per cent. Only Tokyo ended the day in red ink, down 0.22 per cent.