Business

Market ends mixed despite French polls relief

STI spends most of the day in the red as it tracks falls in Hong Kong and China while mostly ignoring a triple-digit rise in Dow futures

Markets may have been relieved with the result of the first round of France's presidential election, but this was hardly apparent from the way trading in this part of the world went yesterday - the Straits Times Index spent most of the day in the red as it tracked falls in Hong Kong and China while mostly ignoring a triple-digit rise in the Dow futures, eventually closing with a net gain of just 4.2 points at 3,144.03.

Turnover amounted to 3.3 billion units worth $1.1 billion; excluding warrants, there were 220 rises versus 247 falls.

The session opened on the front foot after news from France that the polls had yielded no shocks - the two candidates who advanced and will face off in the next round on May 7 were the two that markets had anticipated would do so.

They are Marine Le Pen, a far-right politician who wants to take France out of the European Union, and Emmanuel Macron, who is described as pro-business and pro-Europe and is the market's favoured contender. Both are not from established political parties.

The STI opened at 3,156 then drifted down to an intraday low of 3,129 before a modest afternoon recovery set in. Hong Kong also managed to rise off the day's lows.

Providing additional support was the expectation that Wall Street would rally yesterday, this after US President Donald Trump spoke yet again of "massive" tax cuts to be announced soon. At one point, the Dow futures traded 180 points in the black.

All three local banks finished higher with the FTSE ST Financials Index rising 1.50 to 863.63. The largest drags on the STI came from falls in Genting Singapore, Keppel Corp and Hongkong Land.

In an April 21 report on the banks, Phillip Capital said it is "cautious" on the sector.

"The weak Singapore economic outlook offsets some positive progress the Singapore banks are making in supporting network clients such as large conglomerates in Singapore expand overseas," said the broker.

"Though the Singapore banks may continue to grow Singapore mortgage loans in 2017, we believe the volume growth will be offset by weaker margins... We maintain our 'reduce' rating on UOB, DBS and OCBC."

In discussing the French election results, BlackRock Investment Institute said it sees it as a positive surprise for risk assets in the near term.

"This result should lead to a material reduction in perceived political risk in Europe. We do expect some risk premium to linger until legislative elections in June.

"Both Mr Macron and Ms Le Pen are not part of the mainstream parties that have dominated French politics in the Fifth Republic for nearly 60 years," said BlackRock.

"If Mr Macron becomes France's next president, he may struggle to implement his agenda without a stable parliamentary majority. We expect Italy to be the next focus of European political risk."

Rabobank noted that for markets, the French weekend result means that the "nightmare scenario of a Le Pen (far-right) - (Jean-Luc) Melenchon (far-left) run-off" has been avoided.

"Moreover, an initial snap poll of voters confirms that as things stand now, in a head-to-head contest, Mr Macron would handily defeat Ms Le Pen by around 62 per cent to 38 per cent."

The Singapore Exchange's investor education portal My Gateway reported that the STI has generated a price gain of 9 per cent in the year to date, with dividends boosting that return to 9.5 per cent.

"This has compared to regional dividend-inclusive returns of 6.8 per cent for South-east Asia and 5.8 per cent for the broader Asia Pacific... real estate developers have been the strongest sector within the STI in the year-to-date."

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

Franceelectionstock market