Weak oil prices send STI sliding

A 5 per cent overnight plunge in oil prices brought pressure to bear on the oil and gas (O&G) sector yesterday, depressing the Straits Times Index (STI) by 26.45 points to 3,118.84.

Turnover amounted to a subdued 2.3 billion units worth $1 billion, the lowest one-day total in about 11 weeks. Excluding warrants, there were 163 rises versus 354 falls. Wall Street fell for a third consecutive session on Wednesday after the US Department of Energy reported that its commercial inventory increased by 8.2 million barrels over the last week, far exceeding the consensus of 2.5 million.

"The data catalysed a new wave of glut concerns as the higher oil price might spur North American production, especially of shale oil, which may ultimately counterbalance Opec's effort to support oil prices," said CMC Markets in its morning commentary. The US market's fall was led by energy stocks.

Here, the FTSE Oil and Gas Index closed 1.7 per cent lower.

O&G heavyweights Keppel Corp and Sembcorp Marine, together with most other stocks from the sector, were hit. Shares of property developer Hong Fok closed unchanged at $0.775 on volume of 2.6 million. They had shot up $0.065 on Wednesday, drawing a query from the Singapore Exchange (SGX) to which Hong Fok replied in the negative.

The other firm queried on Wednesday was Global Logistic Properties, the company in its reply referred to previous announcements that it is in non- binding talks with various parties. Its shares yesterday ended $0.02 weaker at $2.71 with 14.2 million traded.

Maybank Kim Eng (MKE) in its March 9 Singapore Market Monitor said the STI's one-year forward price/earnings at 14.4 times is not compelling historically, given a sluggish earnings recovery outlook and high external market vulnerability.

"The 12 month forward earnings outlook has been on a slippery slope since 2015, but we note that the extent of downgrades in the past two quarters has been much lower in quantum and the current 2017 earnings expectation level is close to 3-year lows," said MKE.

"We believe the downgrade cycle will plateau in 2017 and the index should witness a modest growth recovery from the current low base."

In China, imports last month surged 38.1 per cent from a year earlier, the biggest increase since February 2012. Exports unexpectedly fell 1.3 per cent. That left the country with a trade deficit of US$9.15 billion for the month versus a surplus of US$51 billion in January.

Nomura said strong imports had possibly been driven by gains in domestic demand and commodity prices, while weak exports were mainly owing to front-loading in January.

"The unexpected trade deficit is unlikely to last long, as import growth may slow on headwinds in domestic demand and a likely moderation in commodity price inflation," said Nomura.

Macquarie Warrants (MW) said Macquarie Equities Research (MQ) believes the "shock" trade deficit is due to Chinese New Year (CNY).

"In the past, trade deficits also occurred after the CNY holidays, such as 2013 and 2014. For instance, to reduce inventory cost, exporters would frontload exports ahead of the CNY holidays," said MW.

In the US, the probability of an interest rate hike at next week's Federal Open Market Committee meeting is now 100 per cent after an employment report on Wednesday showed that 298,000 jobs were added last month compared to the 187,000 that analysts had estimated.

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts