Market Update 14 February 2017February 14, 2017
We have seen some bullishness in the local market during the Chinese New Year period. During the past week, we saw the STI climb to a year on year high of 3,104.3 points. It then settled at 3,100 points at closing last week. For this week, we might see volatility as more local listed heavyweights such as Singpost, OCBC and DBS release their quarterly and final results. As US President Trump continues with his push on policy reviews, we will likely experience volatility in markets across the globe. When we look at the local market, with earnings expectations looking less than favourable, it is in my opinion that we can expect to see the STI trade between 3,120 and 3,160 points for the coming week.
On Offshore and Marine
It is important to note that investors will need to understand the relatively strong correlation between crude prices and offshore and marine companies. The OPEC has cut output by 840,000 barrels a day last month. These countries will need to cut another 550,000 barrels a day in order to meet the target set out in the agreement that was made in November last year. Crude oil climbed late last week due to the newly imposed sanctions on Iran as the Trump administration aims to punish Iran for recent ballistic missile tests. Investors need to be aware that while OPEC and Russia are striving to meet their promises on cuts, American drillers are moving in by taking advantage of higher prices, and are planning their re-entry into the market by increasing their production, as statistics show a steady increase of US oil rigs being restarted. An increase in crude production from the US will likely impede further upside on crude, and in turn will suppress demand for products and services provided by offshore and marine companies, such as Keppel Corp and Sembcorp marine.
For the past month, we saw many banking stocks climb to new highs, as President Trump prepares to review banking regulations, such as the Dodd Frank Act. These regulations were largely introduced post 2008 after the Lehman Brothers Crisis, and are meant to ensure banks are better capitalised, and protect consumers from predatory lending practices. President Trump argues that such regulations have hindered lending, and have stifled the growth of the banking industry. This however, is contrary to reports by the US Federal Reserve, as they have indicated that commercial bank lending has been steadily rising since 2010, and is currently at a seven decade high.
With expectations on loosening of banking regulations in the US, investor interest in both global and local banking stocks remains strong. Investors will need to take note that it is premature to assume the type of reforms the Trump administration will introduce to banking regulations. In addition to this, it will presently be difficult to attribute or quantify any positive translation of benefits of US banking law reforms to the local banking sector. With the offshore and marine sector performing poorly, we might see local banks increase their provisions for non-performing loans as they continue having exposure to risky loans made to companies such as Ezra. Therefore investors should be wary as local banking stocks such as DBS and OCBC show persistent strength in pricing.
From a fundamental perspective, investors should identify counters in sectors with strong fundamentals and growth opportunities. One notable sector is healthcare, as we continue to see increasing number of affluent individuals being able and willing to seek quality medical attention both in Singapore as well as around the region.
If you wish to know more information about stocks in the healthcare sector, you can speak to a Dealer at a Phillip Investor Centre near you.
About the author
Kervin Ong Zhi Yong
Jurong West Dealing Team
Kervin Ong currently provides dealing services to a portfolio of trading accounts and is part of the POEMS Dealing Team. Apart from his Dealing role, he also gives training seminars to further enrich his clients’ financial knowledge under his care. An external auditor by profession before joining Phillip Securities, his background in due diligence and statutory audits for listed companies equips him with in-depth analytical skills; a skill hugely advantageous for value investors who seek to invest in companies with favorable valuations or shrewd management. Kervin holds a Bachelor of Science in Applied Accounting (Hons) from the Oxford Brookes University, along with memberships under the Association of Chartered Certified Accountants (ACCA) and Institute of Singapore Chartered Accountants (ISCA).