Business

Cautious trading as players wait for Trump

The Dow has tested the 20,000 level at least 20 times in the past few weeks but has been unable to close above it

The reflation play that marked most of November and December 2016 appears to have lost momentum this month, with stocks largely trading within narrow bands with a slightly downward bias.

Over on Wall Street, the Dow Jones Industrial Average is estimated to have tested the 20,000 level at least 20 times in the past few weeks but has been unable to close above it, mainly as doubts surface as to whether the incoming US administration can deliver on its campaign promises.

Here, the Straits Times Index, having broken through the 3,000 level last week, has drifted within narrow bands, mirroring the uncertain trading of Wall Street.

Yesterday, the index inched up 2.86 points to 3,011.08, cutting its loss for the week to about 14 points or 0.5 per cent.

Turnover, however, has been on the decline.

After last week's S$1.1 billion average, this week's average of S$914 million was dragged lower by the year-low S$773 million done on Tuesday, while Friday's turnover was not much better at 2.4 billion units worth S$916 million.

When asked about the current state of the market, a broker replied: "We still come in to work every day but it's a misnomer, there really isn't any work."

Among the developments of note were CapitaLand's sale of all 45 units in a luxury condo to UOB's Wee Cho Yaw for S$411 million, the Singapore Exchange revealing that it expects a decent year for IPOs ahead, and Sembcorp Industries' signing of a build-operate-transfer agreement with Myanmar's Ministry of Electricity and Energy for a 225-megawatt power plant in Myanmar.

External developments of note included Britain's Prime Minister Theresa May outlining on Monday her plans for withdrawing from the European Union, US Federal Reserve Janet Yellen's speech on Wednesday that provided some clues on interest rates, and the inauguration of new US President Donald Trump.

Of these, the last was and still is the most significant, given Mr Trump's election rhetoric of starting a trade war with China.

TRADE CONFLICTS

On this point, Bank of America-Merrill Lynch (BoA-ML), in its Year Ahead for China report, said it thinks the market currently underestimates the negative impact of potential China-US trade conflicts.

"President-Elect Trump has appointed China hawks to some key trade posts with stated plans to sharply reduce bilateral trade imbalance; meanwhile we believe Chinese leaders will be unlikely to back down, heading into the 19th Party Congress scheduled in late 2017," said BoA-ML.

Commerzbank in its Jan 20 Emerging Markets Briefing report, "China 2016 GDP Review: "Will Trump rock the boat?", said on the domestic front, China needs to find a balance between chasing growth and deflating asset bubbles.

"In the past few quarters, China's property prices have grown rapidly, led by first-tier cities.

"As a result, the headline property price index has hit a record high in Q4 2016; however, the rental yields have dropped to record low ... A continual slowdown in the property market will add downward pressure to the economy, and China will have to find new growth engines to sustain its pace of growth."

We still come in to work every day but it’s a misnomer, there really isn’t any work.A broker on the current state of the market

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts