Banking stocks leapt back into favour among investors here, as the local market surged on the United States Federal Reserve's dovish stance on interest rates.
DBS Group Holdings, United Overseas Bank and OCBC led the 24 gainers on the 30-stock benchmark Straits Times Index yesterday.
The STI shot up 35.96 points or 1.26 per cent to its highest level since Dec 31 at 2,880.17, in line with a regional rally after the Fed held rates steady and said it would make only two rate rises this year. DBS soared 37 cents or 2.41 per cent to $15.74, UOB jumped 41 cents or 2.18 per cent to $19.23, and OCBC gained 14 cents or 1.56 per cent to $9.09.
While a delayed Fed hike means banks will not get an interest margin boost, the local 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. 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."
On the commodities front, hope for a coordinated freeze on oil output is mounting as major producers agreed this week to discuss the issue in Qatar next month. Brent futures have since recovered slightly to above US$40 per barrel.
Sembcorp Industries rose 10 cents or 3.28 per cent to $3.15 while Sembcorp Marine gained 4.5 cents or 2.68 per cent to $1.725. Keppel Corp closed 10 cents or 1.67 per cent higher at $6.08.
Only four blue-chip stocks fell, with Thai Beverage dropping one cent or 1.34 per cent to 73.5 cents.
Local shares still have some spring in their step, 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 positive cash-flow while trading at below book value."
Small-cap plays such as Innovalues, Memtech International and Sheng Siong Group are also sound choices, CIMB analyst William Tng said in a note yesterday.
Innovalues, which makes precision machine parts, closed up 0.5 cent or 0.63 per cent at 79.5 cents, while Memtech International, a manufacturer serving the mobile phone and automotive industries, put on 1.5 cents or 2.38 per cent to 64.5 cents. Supermarket operator Sheng Siong was up 0.5 cent or 0.59 per cent to 85.5 cents.
In other regional markets, the Fed rally pushed Shanghai up by 1.2 per cent while Hong Kong gained 1.22 per cent and Sydney closed up 0.96 per cent. Only Tokyo ended the day in red ink, off 0.22 per cent.