Business

Market hit by geopolitical uncertainty

Thursday's 16.8-point drop brings ST Index's loss for the week to eight points

Local stocks spent the week tracking swings in the Dow futures and Wall Street, which in turn were dictated by geopolitical risk concerns.

The main source of this risk were developments first in Syria - where the US launched missile attacks - then the Korean peninsula - where tensions are running high after the US sent an aircraft carrier there this week in an apparent show of force to Pyongyang after the latter's explicit statements about nuclear weapons and the likelihood of using them.

Also high on the list of worries is the US-China relationship, given China's support for North Korea.

This is somewhat tempered by a seemingly friendly visit by China's President Xi Jinping to the US last week and statements by US President Donald Trump that he no longer views China as a currency manipulator.

With elections looming in France, trading activity in most markets has been muted - here, daily volume has hovered close to the S$1 billion mark as traders wait to see the extent to which tensions in Korea will escalate.

TURNOVER 

On Thursday, the Straits Times Index fell 16.77 points to 3,169.24, bringing its loss for the week to eight points. Turnover amounted to a low 2.2 billion units worth S$996.3 million. Excluding warrants there were 158 rises versus 315 falls.

Thursday's most active stock was digital satellite firm AddValue Tech, which ended S$0.003 higher at S$0.046 on volume of 141.8 million.

The company on Wednesday announced a placement of 103.8 million new shares at S$0.039 per share to eight investors that will raise a net S$3.8 million. It said it will make the necessary announcements when the money is used.

Among blue chips, Singtel stood out with a $0.05 loss on Thursday to $3.77 on volume of 47 million, which brought its loss for the week to S$0.11 or 2.8 per cent. Observers said the worry is of added competition here and in Australia.

NUCLEAR TEST

Adding to the uncertainty already shrouding the market were news that North Korea may carry out a nuclear test over the weekend to mark the 105th birth anniversary of the country's founding president Kim Il Sung, an observation by President Trump and his statement that he liked and respected US Federal Reserve chair Janet Yellen, this after he had criticised her during the election campaign for keeping interest rates too low.

DBS's chief investment officer Lim Say Boon in his Do Trump's Quips on the Dollar Matter? note said the bottom line is that the US president's comments do matter to the dollar, but only in the very short term.

"Eventually, it's not what he says but what he does that really matters. And the markets would know he says a lot of stuff - a lot of contradictory stuff. So this will pass," said Mr Lim.

In its April 13 Equity Strategy, Bank of America-Merrill Lynch (BoA-ML) said it has constrained its longer-term bullish opinion on Asia and emerging markets since Feb 20, 2017.

"That is when Global Equity Risk-Love was in euphoria. It has currently fallen a tad, but is not even close to neutral. Volatility is still low (albeit rising), investor surveys are bullish, spreads are narrow, and economic surprises are high but rolling over," said BoA-ML.

"A sense of complacency is palpable in the equity markets, even with geopolitical tension, the US 10-year bond yield at 2.29 per cent, the US Atlanta Fed 1Q GDP tracking at 0.6 per cent and signs that nominal growth in China is peaking out."

Meanwhile, the local economy's Q1 advance GDP figure was announced as 2.5 per cent, described by DBS as slightly below expectations. However, DBS added this could be eventually revised upwards.

"Amid an improving global outlook, the economy remains on track to meet our full year GDP growth forecast of 2.8" said DBS.

"That said, the turnaround thus far has been uneven and restricted to just a few clusters.

"The rest of the economy has yet to feel the uplift and the labour market has also remained soft.

"Besides, inflation will likely remain below historical average (1.8 per cent) this year."

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

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