Reits retreat as Fed statement raises rate fears
THERE were two events this week worth discussing - the US Federal Reserve's first Federal Open Market Committee (FOMC) meeting of 2015 and the Monetary Authority of Singapore's (MAS's) move on the currency front to reduce the slope of its policy band that has led to the Singapore dollar (SGD) weakening.
However, although both were in theory negative for stocks, the Straits Times Index managed to hold reasonably firm during the week, falling first on Monday after news that Greece's parliamentary elections had been won by the Syriza party and on Friday, probably in anticipation of Wall Street weakness.
That latter selloff was notable as it involved many Reits, instruments that are less attractive if interest rates are expected to rise. The selling took the Straits Times Index down 27.85 points or 0.81 per cent to 3,391.20, resulting in a loss for the week of 20 points.
Many in the Reit sector ended lower in high volume - CapitaCom Trust, CapitaMall Trust, Suntec Reit and Ascendas Reit all featured in the top volume list, all ending weaker.
The selling suffered by the segment meant that Friday's turnover was the best in many months at 1.5 billion units worth S$1.8 billion.
Earlier in the day the index actually managed a rise to an intraday high of 3,432, sentiment was probably helped by Wall Street's Thursday bounce, though reasons for that rise were unclear - some reports attributed it to firmer oil prices, others to corporate earnings.
Whatever the case, there is no denying that markets are becoming increasingly concerned about what might occur once the Fed starts raising interest rates, especially since its post-FOMC statement this week used more hawkish language than markets would have liked, such as dropping of the phrase "for a considerable time'' when describing the length of time rates would stay low.
Lisa Hornby, Schroders' US fixed income portfolio manager said in her comments that she expects FOMC statements to become gradually less dovish.
"Although officials are signalling that they will be 'patient in beginning to normalise the stance of monetary policy', a June 2015 hike is still on the table," said Ms Hornby.
"We believe that the Fed is aware of the risks to financial stability of keeping policy too accommodative, especially in the face of an unemployment rate of 5.6 per cent and core inflation of 1.4 per cent. Today's removal of the 'considerable time' verbiage is evidence of this gradual shift in stance."
The other occurrence was the MAS's move which many have said should mean a weaker SGD in the near-term. Coming just a week or so after the Swiss central bank lifted its cap on the franc/euro exchange rate and the European Central Bank's trillion-euro bond-buying announcement, it clearly indicates that 2015 looks to be the year in which central bank action will be crucial to how markets and economies perform.
Analysts have scrambled throughout the week to work out which sectors and stocks will benefit or lose from the MAS move.
