Rate-sensitive sectors such as Reits, telcos and industrials could get a boost from the US Federal Reserve's expected first rate cut in four years.
“Anecdotal evidence of stock performance in previous rate cut cycles shows that the Singapore stock market benefited at the start of the easing of the interest rate cycles during the 2007 and 2019 rate cuts,” said CGS International in a strategy note on Sept 16. Although the latest US consumer price data suggests that inflation is close to its lowest levels since late 2022, the prevailing thinking is that the Fed will not rush into slashing rates aggressively, being cognisant of the risk of a resurgence in inflation akin to the 1970s where the then Fed chair Arthur Burns failed to keep monetary policy tight for long enough to permanently quell inflation.
Mr Thilan Wickramasinghe, head of research at Maybank Securities, said: “We think it will be taken positively by the market as it is a clear indication that the Fed is more confident of the path on inflation. Now, the bigger surprise would be a jumbo cut of 50 bps. This could give a strong sentiment boost to equities, especially rate-sensitive sectors such as Reits, telcos and even industrials.”
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