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Banks hold up STI amid N Korea tensions

A LARGE push on the banks helped the Straits Times Index record a rise of 5.16 points to 3,323.24 in a day when the broad market registered 314 falls against 168 rises, weakness brought on by worries over North Korean tensions.

Turnover soared to three billion units worth S$1.8 billion, also helped by elevated trading of the banks. In total, trading in the three lenders was worth S$325.4 million, or almost 20 per cent of the whole market's dollar volume.

Also catching the eye was the continued rise in the shares of Yangzijiang Shipbuilding (YZJ), the stock adding S$0.04 at S$1.595 that came with 33.4 million shares traded which added S$54 million to business done, and a S$0.03 drop in Global Logistic Properties (GLP) to S$3.22 on volume of 52.2 million that was worth S$169 million. GLP is the subject of a takeover/privatisation offer at S$3.38 per share.

Despite support for the index, sentiment was weak largely because of North Korea's defiance of US President Donald Trump's promise of "fire and fury''. According to news reports, Pyongyang is planning missile launches into waters 30-40km off the coast of the US Pacific territory of Guam.

In response, all Asian markets closed weaker with Hong Kong's Hang Seng Index dropping 1.13 per cent, European markets opened in the red across the board and the Dow futures stood 36 points lower at 5pm.

The biggest support for the STI came from a S$0.24 rise in DBS to S$21.26 on volume of 7.9 million. Macquarie Warrants (MW) in its daily newsletter noted that after rallying to a new one-year high two weeks ago, DBS shares have taken a breather by pulling back 5.5 per cent to close at S$21.02 on Tuesday.

"The stock has closed in the red for four consecutive days after reporting its second-quarter 2017 results,'' said MW, adding that Macquarie Research (MQ) analysed DBS's results in a report on August 4 and concluded that at 1.22x forward price-to-book value, DBS is "inexpensive".

"MQ has an Outperform rating on DBS with a 12-month target price of S$22.20,'' said MW. "MQ's recommendation is based on DBS's (i) ability to further increase dividends due to a strong capital position; (ii) strong wealth management platform; (iii) inexpensive valuations at 1.22 times forward price-to-book value based on MQ's estimates'.'

As for YZJ, OCBC Investment Research said though there is still room for further price/book expansion with improving sentiment, a fair amount of new orders expectation is likely "baked'' into the current share price.

"As such, buyers at current levels face a certain level of downside risk should new order flow momentum slow in the near-term. Maintain HOLD with higher fair value of S$1.58; we prefer to be buyers around S$1.48,'' said the broker.

Bank of America Merrill Lynch(BoAML) in its August 9 "Asian Earnings: On Track'' said analysts continue to revise up their estimates for Asia ex-Japan corporates.

"The Street has raised its 2017 EPS growth estimates for Asia ex-Japan from 17.5 to 20.5 per cent in past three months ... 2017 EPS consensus growth estimates have been revised up in Korea (34.3 to 48.1 per cent), Hong Kong (8 to 10.4 per cent) and Singapore (5.9 to 7.1 per cent) in the past three months,'' said BoAML.

Rabobank in its Rates Daily noted that the latest US-North Korea escalation has thus far remained isolated to a war of words. However, the bank also pointed out the unpredictable nature of the North Korean regime and the fact that Pyongyang is either near or has already achieved success at arming long-range missiles with miniaturised nuclear capabilities.

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