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Markets cheer Fed's dovish stance

This article is more than 12 months old

STI gains 10 points or 0.3 per cent to close at 3,350 as Australia, China, Japan, Hong Kong and South Korea also close higher

The local equities market, like most others, had been in a limbo since last Friday's US jobs data exceeded expectations and sent investors second-guessing the extent of rate cuts by the US Federal Reserve.

But yesterday, market participants were reassured of the Fed's dovishness after chairman Jerome Powell's testimony on Wednesday.

This translated to a risk-on session in Asia, with the Straits Times Index (STI) gaining 10.03 points or 0.3 per cent to close at 3,350.45.

Following the testimony, which market watchers said signalled a confirmation of a rate cut of at least 25 basis points (bps) in July, other markets in the Asia-Pacific, including Australia, China, Japan, Hong Kong and South Korea, closed higher.

Mr Eli Lee, Bank of Singapore's head of investment strategy, said the private bank's baseline scenario is currently one where the Fed will cut rates by 25 bps in July, with another similar cut likely to follow in September "since a single cut alone would not help the Fed achieve much".

"Historically, insurance rate cuts by the Fed have been around 75 bps in total, so we could expect another in December or later," he added.

Similarly, Schroders chief economist and strategist Keith Wade believes that rate cuts in July and September are on the horizon, with both cuts likely to be "presented as 'insurance' against the downside risks facing the US economy".

In Singapore, trading volume clocked in at 1.42 billion securities, 19 per cent over the daily average in the first six months of 2019.

Total turnover came to $1.22 billion, 5 per cent more than the January-to-June daily average.

Across the broader market, advancers beat decliners 237 to 191.

The benchmark index had six of the STI's 30 components closing in the red.

Mr Powell's confirmation of a dovish stance saw real estate investment trusts (Reits), often billed as key beneficiaries of reduced borrowing costs, stage gains. That said, gains appear capped as many Reits already have high valuations after last month's rally.

Among the gainers were CapitaLand Mall Trust (which closed $0.04 or 1.5 per cent higher at $2.69) and Keppel Reit (up $0.01 or 0.8 per cent to $1.27).

Mapletree Industrial Trust, which closed $0.03 or 1.3 per cent higher to $2.32, was also among the top performing Reits on the day. Analysts were positive on the implications of its plans - announced on Wednesday- to redevelop the Kolam Ayer Cluster 2 at Kallang Way into a high-tech industrial precinct.

DBS Equity Research analysts said: "The (Reit) manager's well-timed acquisitions and completions/initiation of new development projects underpin a steady growth profile and more importantly, a constant upgrade and refresh of the portfolio that in our view, will be more resistant to business cycle fluctuations."

DBS maintained its "buy" call on the Reit but increased its target price to $2.50.

Maybank Kim Eng has a "buy" recommendation with a target price of $2.40 while CGS-CIMB has left unchanged its "add" call and target price of $2.32.

Singtel added $0.03 or 0.9 per cent at $3.53 on 28.5 million shares, the most among benchmark index components.

The local banks were mostly higher.

DBS Group Holdings gained $0.21 or 0.8 per cent at $25.61, United Overseas Bank edged up $0.03 or 0.1 per cent to $26.44 and OCBC Bank closed flat at $11.48.

Mainboard-listed Cordlife Group, which closed 16.5 per cent higher on Wednesday on heavy volume, dipped one cent or 1.7 per cent to close at 59 cents yesterday.

The counter saw a hive of activity on Wednesday, thanks to married trades amounting to 33.8 million shares.

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