STI rises as Fed confirms dovish stance

Markets like certain outcomes and its participants finally got confirmation of what they had been expecting from the US Federal Reserve - the door for impending rate cuts was open.

Understandably, regional equity markets staged broad gains yesterday with the Straits Times Index (STI) being no exception. The blue-chip index extended gains, up 26.34 points or 0.8 per cent to finish at 3,314.51.

Australia, China, Hong Kong, Japan, Malaysia and South Korea all ended higher.

"Markets are now pricing in a very high probability that the Fed will cut rates at their next meeting on July 31, with a good chance that it will be a 50 basis point cut rather than a 25 basis point cut," said UBS Global Wealth Management regional chief investment officer, Mr Kelvin Tay.

Meanwhile, FXTM market analyst Han Tan noted the prospects of a rate cut, which is weakening the US dollar, might see Asian currencies enjoy relief in the near-term.

Gold was already trading at near six-year highs during the Asian session.

Equity markets were also given a lift by the likely meeting between the US and China at the G-20 summit next week.

It is worth pointing out that a deal is unlikely to be done. But the fact that a meeting has been pencilled in seems enough to calm nerves, for now.

In Singapore, trading volume was 1.56 billion securities, 30 per cent over the daily average in the first five months of this year.

Total turnover was $1.31 billion, 25 per cent over the January-to-May daily average.

Across the market, advancers trumped decliners 237 to 162 and just four of the STI's 30 components closed in the red.

Financials continued to trend upward. DBS Group Holdings closed 39 cents or 1.5 per cent up at $25.82, OCBC Bank added six cents or 0.5 per cent at $11.24 while United Overseas Bank finished at $26.22, advancing eight cents or 0.3 per cent.

It was UOB's turn yesterday to receive an upgrade call to "buy" from OCBC Investment Research.

RALLY

The research house's head Carmen Lee noted that even after UOB shares rallied for nine straight days, gaining 9 per cent prior to yesterday's session, it remains "inexpensive".

She has maintained the fair-value estimate for UOB at $28.90.

Banks took a hit both last month and this month on trade war concerns, global growth slowdown and the likely cuts in interest rates, which some worried might eat into net interest margins in future.

But the lenders' shares have since reversed course, triggered by attractive valuations after the dip.

CGS-CIMB, which is neutral on the banking sector, is of the view that the local lenders have "steady asset quality metrics and robust capital levels to provide some baseline support for the sector at current valuations".

Real estate investment trusts (Reits) continued to see interest as the Fed confirmed its dovish stance, with the iEdge S-Reit 20 Index up 0.6 per cent yesterday.

A Morgan Stanley research note yesterday acknowledged that with the exception of industrial Reits, Singapore Reits (S-Reits) posted disappointing results in the first quarter.

But "current valuations should hold up on a benign interest rate outlook as well as increased redevelopment potential".

Morgan Stanley has increased its price targets for S-Reits under its coverage by an average of 10 per cent on increases in dividend/share forecasts and the incorporation of better valuations.

Of the eight under the bank's coverage, Ascendas Reit (up one cent or 0.3 per cent to $3) remains a top pick as "it is the best proxy for defensive Reits and could benefit from redevelopment projects".

For full listings of SGX prices, go to https://www2.sgx.com