News of HK-China connect boosts STI

A LARGE rally over in Hong Kong first thing in the morning following news that its cross-border link with Shanghai will start next Monday helped boost the Straits Times Index (STI) on Monday, thanks mainly to a big push on the three banks and Noble Group.

However, as Hong Kong's gains eventually dwindled by almost half by the end of its trading day so did the STI's, the latter first rising 25 points to an intraday high of 3,312 but ending with a net gain of 14.61 points at 3,301.

The broad market's advance-decline score excluding warrants was an even 214-214, and turnover was an average 1.4 billion units worth S$1.03 billion.

The Hang Seng Index's morning jump of 2 per cent came after several days of weakness, and was widely attributed to news that its long-awaited link with exchanges in China is set to go live on Nov 17. The link will for the first time, allow global investors to trade Chinese stocks directly from Hong Kong, while mainland investors will be able to access the Hong Kong equities market. Reuters news agency said joining the Hong Kong and Shanghai stock markets will effectively create the world's third-largest equity market with a US$5.6 trillion single market capitalisation, behind the New York Stock Exchange and Nasdaq OMX and ahead of London and Tokyo.

In a Monday report on the link, Deutsche Bank said it signifies a milestone in opening up the Chinese domestic equity market to global investors, setting the stage for liberalising the country's capital account and bringing forward renminbi internationalisation in the future.

Within the STI, DBS's S$0.31 or 1.6 per cent surge to S$19.65 stood out by virtue of the fact that it contributed about six points towards the index's gain. In Noble's case, OCBC Investment Research issued a "buy" on Monday, pointing out that Noble's net profit for the nine months ended Sept 30 jumped 193 per cent to US$127.0 million, meeting 79 per cent of the broker's forecast, and that the company has declared a special dividend of US$0.03 share.

"While we are opting to leave our estimates unchanged for now, and our fair value also remains at S$1.31 (based on 13.5x FY14/FY15F EPS), we are upgrading our call from 'hold' to 'buy'," said OCBC Investment Research. Noble ended S$0.05 higher at S$1.25 with 50.5 million shares done.

Shares of Indonesian agri-food company Japfa Ltd fell sharply last week after a subsidiary reported an unexpected 90 per cent profit fall. Japfa itself reported its latest figures on Friday and DBS Vickers on Monday reduced its target price for the counter from S$1.16 to S$1 but maintained its "buy", saying that the recent sell-off has more than factored in weak purchasing power in Indonesia. The counter ended S$0.005 lower at S$0.66 with 1.9 million traded.

MFS Global in its November Outlook report said the low volatility that dominated markets for most of 2014 and lulled investors into a false sense of security has ended on the back of last month's global growth scare.

"We expect investors will have to stomach far more volatility moving forward. Historically at such inflection points, fundamentals have become increasingly important, and higher volatility has translated into lower asset class correlations and bifurcation in stock performance," explained MFS.

"Now that volatility has woken up from its slumber, we do not expect it to subside quickly. Instead, we think market conditions could remain choppy for some time - especially with Fed policy hitting an inflection point while other central banks are easing to combat weaker growth and disinflation bordering on deflation."

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