SINGAPORE: Singapore shares fell on Thursday (Sep 22), tracking losses in the region and overnight on Wall Street after the US Federal Reserve raised interest rates and signalled further hikes ahead.
The Straits Times Index (STI) slipped 0.41 per cent, or 13.26 points, to 3,248.53 by midday.
Losers outnumber gainers 245 to 159, as 462.5 million securities worth S$472.8 million changed hands.
“The tilt towards risk-off has dominated early market performance,” said OCBC’s chief economist and head of treasury research and strategy Selena Ling.
Banking stocks were among the heavily traded stocks in terms of value.
DBS shed 0.3 per cent, or S$0.11, to S$33.42, while OCBC dropped 0.40 per cent, or S$0.05, to S$12.30. UOB fell 1.26 per cent, or S$0.35, to S$27.33.
Real estate investment trusts (REITS), which are sensitive to interest rate fluctuations given the impact on yield spreads and borrowing costs, were mostly on the backfoot.
Mapletree Logistics Trust declined 1.2 per cent, or S$0.02, to S$1.64, while Lendlease REIT and Suntec REIT both lost 1.24 per cent.
Inflight caterer and ground handler SATS tumbled 5.38 per cent, or S$0.22, to S$3.87. The company had on Wednesday said it was in discussions to acquire air cargo handler Worldwide Flight Services, although no definitive terms or formal legal documentation have been agreed upon.
In the region, most stock bourses traded in the red, with MSCI's broadest index of Asia-Pacific shares outside Japan down 1.33 per cent to its lowest since May 2020.
Japan’s benchmark Nikkei 225 index was last seen trading lower by 0.7 per cent after the Bank of Japan said on Thursday it would maintain its ultra-low interest rate and dovish policy guidance.
South Korea’s Kospi index fell 1.1 per cent to a more than 10-week low, while in Hong Kong, the Hang Seng Index tumbled nearly 2 per cent.
Earlier on Thursday, the Hong Kong Monetary Authority raised its base rate charged through the overnight discount window by 75 basis points. Hong Kong’s monetary policy moves in lock-step with the United States as the city’s currency is pegged to the greenback.
Meanwhile, the Fed’s announcement also sent the US dollar up to a fresh two-decade high, and hitting new records against currencies such as the euro, pound and the yen.
The Singapore dollar touched 1.4203 against the greenback by midday, down 0.23 per cent to mark its lowest since April 2020.
A strong dollar is likely to persist as the Fed continues with its aggressive rate hikes, but monetary policy tightening efforts among most Asian central banks should help to limit the extent of depreciation among regional currencies, said Mr Tai Hui, chief market strategist for Asia Pacific at JP Morgan Asset Management.
A MORE HAWKISH FED
The US central bank announced its third consecutive interest rate increase of 0.75 percentage point on Wednesday, continuing forceful action to tamp down inflation that has surged to the highest in 40 years.
US stocks seesawed following the announcement and later finished the session in the red. The Dow Jones Industrial Average closed down 1.7 per cent at 30,183.78 on Wednesday. The S&P 500 slid 1.71 per cent to 3,789.93 and the Nasdaq Composite dove 1.79 per cent to 11,220.19.
Markets had been expecting another big interest rate increase, but were caught off guard by the Fed's outlook as far as the need for additional hikes.
The latest Fed statement included interest rate projections for the end of 2023 and 2024 that are higher than the previous forecasts, signalling that the US central bank now sees the need for a more prolonged monetary tightening cycle in light of inflation trends.
A "more hawkish narrative” by Fed officials underscore the central bank’s “willingness to sacrifice growth to get inflation lower”, said analysts from ING Economics while pointing to how officials have cut their forecasts for several economic indicators.
“The Fed is effectively acknowledging that a recession is coming, but inflation will not fall quickly and there will be a lot of pain,” they said in a note.
Globally, the outlook has also dimmed.
Sustained interest rate hikes, coupled with existing pressures such as Europe’s energy crisis and heightened geopolitical tensions, might put the global economy at risk of a recession within the next year, said TD Ameritrade Singapore’s chief executive Greg Baker.
WHAT THIS MEANS FOR INVESTORS
Mr Tai Hui, chief market strategist for Asia Pacific at JP Morgan Asset Management, said the near-term outlook for equities will remain challenging amid the more hawkish path for interest rates.
On the other hand, high-quality bonds with an intermediate to long duration may be more attractive within the fixed income space.
“The rate hike … (supports) our emphasis on portfolio stability and a more defensive stance on asset allocation. For Asia, the Fed’s outcome is also likely to keep pressure on risk assets in the near term, especially for export oriented companies,” he said.
With major indices around the world reacting more sensitively to global macroeconomic indicators, Mr Baker said investors should keep their sights on the long term and maintain a diversified portfolio that can weather short-term market volatility.
In Singapore, short-term Singapore-dollar interest rates are likely to see further upward adjustments in order to keep pace with the hawkish US central bank.
“There could be more pressure emerging on property mortgage rates and refinancing costs for corporates going out into year-end and into early 2023,” said OCBC’s Ms Ling.
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