Business

STI down 0.5% as Wall Street stings

US stocks may have posted worst start to April since Great Depression, but DBS market experts expect STI to break out to 3,500 soon

Singapore shares opened weaker yesterday, after US equities on Wall Street posted their worst start to April since the Great Depression in 1929.

Investors took their cue from overnight US markets, which tumbled on the first trading session back after the Easter weekend, both on trade war fears and a bearish turn for technology stocks.

Adding to the market's nervousness was US President Donald Trump's repeated threat to tear up the North American Free Trade Agreement, and tweets that Mexico was doing too little to counter illegal immigration into the US.

The Straits Times Index (STI) traded within a tight range of 3,387.38 to 3,412.15, before settling at its intraday high of 3,412.15, down 0.54 per cent, or 18.61 points, from Monday's close. More than 1.5 billion shares worth $1.2 billion changed hands, with 147 gainers to 263 losers.

Yangzijiang Shipbuilding, Genting Singapore and Sembcorp Industries were among the losers, while gainers included Thai Beverage Public Company, Golden Agri-Resources and Hongkong Land.

WORRIES

Ms Pan Jingyi, market strategist at IG, warned that worries remain, with Mr Trump renewing criticisms about Amazon and China's tariff retaliation further hammering sentiment.

"More importantly, we have witnessed US markets breaching key technical supports and that piled on the pressure. For the S&P 500 index, that had been the slide and it closed below its 200-day moving average of 2,589.85 on Monday just as the Dow plummeted to the lowest level this year, making its way to a lower low," she said.

Ms Pan said the price action certainly suggests that there could be more pain ahead.

"Both the anticipation about the list of targeted Chinese imports from the US and expectation for wage inflation to pick up in the upcoming March reading do not bode well for equity markets, which will be closely watched in upcoming sessions," she said.

Crude oil held losses below US$64 a barrel as the risk of a trade war between China and the US rattled a market that is already grappling with swelling inventories.

In its monthly strategy report, DBS market experts Yeo Kee Yan and Janice Chua expect the STI to break out from 3,400 to 3,500 in one to two months.

"STI's narrowing consolidation range has tightened to between 3,400 and 3,500. Expect a breakout latest by May," the analysts said.

The directional break will depend on how the US-China trade skirmish unfolds, the coming first quarter 2018 earnings season as well as corporate earnings revision trend.

The duo are keeping their base-case assumption for STI's year-end target at 3,715.

HAWKISH

As inflationary pressures pick up, with the US Federal Reserve turning more hawkish and trade tariffs driving up the cost of goods in the US, they said inflation hedges and related stocks /exchange traded funds (ETF) should benefit.

These include gold US$ ETF, oil-related stocks such as rigbuilders Keppel Corp, Sembcorp Industries and Sembcorp Marine.

Investors could also look at Lyxor Commodity US$ ETF, Lyxor CRB Ex-Energy US$ ETF, as well as commodity stocks such as Olam, Wilmar, Bumitama and First Resources.

In terms of commercial and residential properties, DBS likes City Developments, UOL, Roxy Pacific, CapitaLand and Hong Fok.

However, manufacturing stocks with China operations, such as Hi-P and Sunningdale, are expected to be affected by the US-China trade skirmish, which Mr Yeo and Ms Chua expect could drag on till the November US mid-term election or escalate into a trade war involving multiple nations.

United Overseas Bank and ST Engineering top the research house's list of big-cap stocks with good dividend payouts.

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