Singapore market faces rising interest rates

By Margaret Yang, CMC Markets

Banks rally whereas real estate under pressure

In Singapore, the local short-term interest rates are on the upswing, with 3-month SIBOR rising to 0.91% for the first time in four months. The year-high was 1.25% at the beginning of the year, meaning there is still a lot of room to rise. The rising interest rate environment is not good news for the local property market and Real Estate Investment Trusts (REITs).

As a result, Singapore’s property stocks underperformed the benchmark recently. Hongkong Land (-2.4%) in particular was hammered by both rising interest rates and the cooling measures carried out by HK authorities last week. Its share price has dropped to four-month lows.

On the flip side, Singapore banks have been performing very well since the US election. One of the reasons is that the local interest rate benchmark, namely SIBOR and SOR has started to rise in response to a weaker Singapore dollar. Higher interest rates are generally good news for banks as their net interest margins will increase.

Another reason is that Trump’s administration is seen loosening regulatory control over financial institutions. We have seen US banks doing exceptionally well since the election. Positive sentiment has spread to Singapore banks as well.

The Straits Times Index remains range bound within a narrow band between 2,700 -2,800 since Trump’s unexpected election victory. The surge in banking shares was offset by a drop in the offshore & marine sector. The valuation of the Singapore stock market is now among the lowest in Asia, which makes it attractive to value investors as well as overseas buyers.

DBS Group

Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore