Business

North Korean missile test rattles markets

US domestic politics weighing on investor sentiment, turnover low at two billion units worth $967 million

A North Korean missile test yesterday brought geopolitical tensions to the fore and sent the Straits Times Index down 18.28 points to 3,249.34. At 5pm, the Dow futures had dropped 144 points, signalling a weak opening for Wall Street, while Europe opened in the red.

News reports said North Korea fired a missile that flew over Japan and landed in the Pacific about 1,180km off Hokkaido.

Japanese Prime Minister Shinzo Abe said it was "a most serious and grave" threat.

Reuters described the test as one of the most provocative ever from the reclusive state and CNN reported that South Korea responded by conducting a bombing drill to test its "capability to destroy the North Korean leadership".

Most observers noted that safe havens all benefited from the spike in geopolitical worries.

Rabobank foreign exchange analyst Jane Foley noted that the location of the conflict and the parties involved make the euro, rather than the US dollar, the preferred safe haven currency.

Given the tensions, it was no surprise that turnover here was a low two billion units worth $967 million or that the advance-decline score was a weak 160-268, excluding warrants.

It was also no surprise that the three banks led the index losers as the lenders have been the index's main driving force throughout this year.

As for property, DBS Vickers in an Aug 28 report said it has been marketing the sector to investors across Asia over the past few weeks and found that despite prices having already risen sharply, most investors were positive and were looking to buy on weakness.

"We maintain our view that the office/business parks and hospitality sub-sectors will lead the recovery in the property market, aided by a larger fall-off in supply," said the broker.

Among the actives was NetLink NBN Trust, which ended unchanged at $0.81 on volume of 17.6 million.

UOB-Kay Hian in an Aug 29 report initiated coverage of the firm with a "buy" and $0.93 target price, saying that NetLink NBN Trust operates the only passive fibre infrastructure to provide wholesale dark fibre services for ultra-high-speed fibre connections in Singapore.

"It has a dominant market share of 81.7 per cent for residential and 30.8 per cent for non-residential connections, where growth is projected at five-year CAGR (compound annual growth rate) of 7.2 and 10.1 per cent respectively for 2016-21. The Smart Nation initiative also provides numerous opportunities for growth."

The broker's target price was based on a discounted cash flow using a cost of equity of 6.5 per cent and a terminal growth rate of 2 per cent.

Bank of Singapore chief economist Richard Jerram in his latest Economics Research report US Shutdown and Default said the US government needs to pass a budget in September to avoid a government shutdown, as well as take actions to avoid risk of default, which would be more disruptive.

"The unpredictability of President Trump and his deteriorating relationship with Republicans in Congress mean we have to be alive to a range of possible outcomes," he said.

"Trump is already suggesting he is prepared to shut down the government as part of this effort to budget funds for his border wall with Mexico..."

CMC Markets said that from a technical perspective, the three US indices have entered into a technical correction since early August, and this trend has shown no sign of reversing yet. "External factors - such as extreme weather and geopolitical tension - continue to weigh on market sentiment and could potentially pave the way for a deeper correction," it added.

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

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