STI plunges, wiping out almost all of year’s gains

SINGAPORE — Shares in the Republic continued to plunge yesterday, with the benchmark Straits Times Index erasing almost all of its gains this year on fears that global interest rates would begin to rise, as analysts warned that downward pressure would persist ahead of key policy decisions by the United States central bank and on uncertainty over Japan’s outlook.

The STI closed down 1.5 per cent, extending Wednesday’s decline of the same percentage magnitude to end at 3,193.51, the lowest close this year. This means the benchmark is holding on to a gain of only 0.8 per cent year to date, barely two weeks after it hit a five-year high of 3,454.37.

All but two of the 30 STI component stocks fell yesterday, with transport operator ComfortDelGro and warehousing and logistics giant GLP leading losses with declines of 3.2 per cent and 2.6 per cent, respectively.

“From a technical point of view, the STI has entered bearish territory having broken the 3,300-level and losing almost all its year-to-date gains,” said Mr Desmond Chua, an analyst at CMC Markets.

“The market has been very volatile due to a lot of QE (quantitative easing) talk … It’s a wait-and-see approach right now,” he said.

Elsewhere in Asia, Japan’s Nikkei-225 stock index closed down 0.9 per cent yesterday, China’s Shanghai Composite lost 1.3 per cent while Hong Kong’s Hang Seng Index declined 1.1 per cent. Overnight, the Dow Jones Industrial Average shed 1.4 per cent.

Sentiment has been hit by uncertainty over whether the US Federal Reserve will start to scale back its QE programme, where it has committed to buying US$85 billion a month of bonds to keep interest rates low. Investors have also been readjusting portfolio positions ahead of today’s (FRI) US job report, which is closely watched because it could influence the Fed’s policy stance.

In Asia, Japan’s growth is starting to look doubtful, with investors unimpressed with Prime Minister Shinzo Abe’s plan to reform the economy, saying the programme lacked detail. That sent the Nikkei-225 down more than 20 per cent from its peak on May 22.

IG Markets’ strategist Kelly Teoh said that in light of the global conditions plus a bout of profit-taking, the STI’s downward spiral in recent days was “in line with global consensus.”

“The retracement in STI is not surprising … There was a run up in all markets this year, a correction is needed, but the extent at which it is happening is sending jitters,” she said.

“External downward pressure persists at the moment as investors stay cautious ahead of pending decisions from policy makers,” she added.

CMC’s Mr Chua said, “It all boils down to jobs data this Friday. Worsening employment conditions point towards weaker jobs data this Friday … while services PMI data came in higher than expected, (but) a further read into the report revealed that the employment index fell by 1.9 per cent.”