Singapore, Malaysia shares fall on Fed rate outlook
SINGAPORE (Nikkei Markets) -- Singapore stocks suffered their worst decline in a month after the U.S. Federal Reserve raised interest rates and maintained its forecast for one more rate increase later this year. Malaysia shares also ended lower.
The Fed delivered a widely-expected 25-basis-point rate increase on Wednesday, taking its key lending rate to a target range of 1% to 1.25%, and also reiterated that it will raise rates a third time in 2017. It kept its forecasts for rate hikes through 2019 almost unchanged. The central bank also outlined plans to reduce its bond holdings starting later this year.
Most Asian markets fell on Thursday as many investors had expected the Fed would scale back projections for future rate increases amid ongoing U.S. political uncertainty and a clutch of recent disappointing economic data.
"I think at the margin the statement and (Janet) Yellen's vision were hawkish, certainly relative to pricing," said Chris Weston, chief market strategist at Melbourne-based brokerage IG.
Long term U.S. bond yields, however, closed at seven-month lows after softer-than-expected inflation data and disappointing retail sales numbers. Just before the Fed's policy decision, data showed that core-inflation, the central bank's preferred measure for prices, slowed to 1.7% last month from 1.9% in April.
Singapore's FTSE Straits Times Index slipped 0.7% to 3,239.09, with interest-rate sensitive banks and developers pacing declines. Borrowing costs in Singapore are largely determined by moves in U.S. interest rates as the city-state's central bank conducts its policy by managing the Singapore dollar's exchange rate instead of changing interest rates.
United Overseas Bank dropped 2.2%, DBS Group Holdings and Oversea-Chinese Banking Corp. slipped 0.9% each following the flattening of the U.S. bond yield curve. The difference between the 10-year U.S Treasury yield and that of the two-year note fell to more than a nine-month low overnight. The bank's net interest margins are a function of the steepness of the interest rate curve. A flatter yield curve weighs on margins of banks.
Among developers, City Developments fell 0.7% and CapitaLand lost 1.4% each. Singapore developers sold 1,024 new private homes in May, a decline of 34% from April when sales totaled 1,555 units, according to data released by the Urban Redevelopment Authority on Thursday. Year-on-year, sales of new private homes were little changed.
Rig-builder Keppel Corp. lost 1.3% and its peer Sembcorp Marine dropped 1.8% after Brent crude prices slid 3.5% overnight.
Film production and distribution company MM2 Asia fell 3.3% to S$0.58 after saying it will issue 87.75 million new shares at S$0.57 each to raise about S$49.0 million ($35.6 million).
The FTSE Bursa Malaysia KLCI slipped 0.1% to 1,790.01. Astro Malaysia Holdings fell 0.7% after reporting a decline of 3.1% in net profit for the fiscal first quarter.
Analysts flagged Astro's soft revenue and weaker-than-expected performance at its home shopping segment as main concerns. The quarter-on-quarter drop in total revenue implies higher churn rate and declining subscriber base, UOB Kay Hian's Vincent Khoo said. AmInvestment Bank's Lavis Chong noted that cheaper alternatives will likely pressure Astro's subscription and average revenue per user.
Among other notable losers on the KLCI, Genting Malaysia and Westports Holdings fell at least 1.6% each.
Sapura Energy fell 5.1% and Bumi Armada lost 1.3% weighed down by decline in crude prices. Bumi Armada has set up a three-way joint venture to bid for floating, production, storage and offloading projects in Ghana, the offshore oil and gas services company said late Wednesday.
Property-to-pharmaceuticals company Sunway jumped 7.5% to new record highs of 4.01 ringgit after a proposed bonus share-issue. The company said late Wednesday that it is planning four-for-three bonus share and three-for-10 free warrants issue.
Hong Leong Investment Bank's Lee Meng Horng, who has a "buy" call on stock, raised Sunway's target by nearly 30% to 5.01 ringgit.
Berjaya Food, which runs Kenny Rogers Roasters and Starbucks Coffee chains in Malaysia, fell 2.6% to 1.49 ringgit after swinging to a fourth-quarter net loss. "The earnings shortfall was mainly due to the softer showing from its KRR division, which continues to disappoint as sentiment remains weak and competition rife," CIMB Investment Bank said in an investor note. The bank downgraded the stock to "reduce" and cut its price target to 1.36 ringgit from 1.76 ringgit.
Poh Huat Resources Holdings rose 3.2% after the furniture-maker's second-quarter net profit surged nearly three times
--Nimesh Vora and Kevin Lim