Bulls And Bears

STI dips on Fed's dovish stance, trade war jitters

Mixed day for Asian markets amid rising Mid-East tensions, pre-G-20 uncertainty

Lacking catalysts, the local equities market had a cautious start to the week, and like its regional peers, saw muted market action.

The Straits Times Index (STI) finished at 3,311.53, down 9.87 points, or 0.3 per cent.

It was mixed across the region with markets in Australia, China, Hong Kong and Japan notching up modest gains. South Korea was flat and Malaysia closed lower.

"We were calling for a mixed start today regardless of the Middle East brouhaha as the market is weighted down by the uncertainty of what door to walk through," said Vanguard Markets' managing partner Stephen Innes.

The "doors"are the dovish US Federal Reserve, trade war uncertainty, Middle East escalation in tensions and the wait-and-see approach until the G-20 meeting between the United States and China.

Trading volume in Singapore clocked in at 1.38 billion securities, 16 per cent over the daily average in the first five months of this year. Total turnover came to $1.01 billion, just under the January-to-May daily average.

Across the market, decliners trumped advancers 214 to 169. The STI fared better, with 12 of its 30 components ending in the red.

Expectations of Fed dovishness saw investors turn to buying up real estate investment trusts (Reits) in recent weeks. While Reits are beneficiaries of a lower interest rate environment, traders said some now have "expensive" valuations.

OCBC Investment Research downgraded CapitaLand Commercial Trust (CCT), which closed unchanged at $2.14, to "sell" on valuation grounds. The research house said that given the rally, its estimate for CCT's financial year 2019 distribution yield fell to 4.3 per cent. Meanwhile, a Bloomberg consensus has distribution yield at 4.2 per cent, which is an eight-year low, and "CCT last traded at such tight valuations in terms of absolute yield" in November 2007, OCBC said.

That said, retail Reits still offer upside. Last Friday, UOB Kay Hian said such Reits have weathered the impact of online shopping and are seeing more contribution from tourists.

Among defensive Reit plays, UOB Kay Hian favours Frasers Centrepoint Trust (FCT), which advanced $0.05, or 2 per cent, to $2.59 yesterday, for its focus "on necessity spending and suburban retail malls in HDB housing estates".

Financials were among the laggards. DBS Group Holdings closed $0.15 or 0.6 per cent down at $25.77, OCBC Bank dipped $0.07, or 0.6 per cent, to $11.28 while United Overseas Bank finished at $25.86, dropping $0.46, or 1.8 per cent.

A version of this article appeared in the print edition of The Straits Times on June 25, 2019, with the headline 'STI dips on Fed's dovish stance, trade war jitters'. Print Edition | Subscribe