Business

STI down 1.2% despite US political turmoil

Index ends just 2.44 points down after plunging 35 points to intraday low; banks put up mixed performance

Political developments in the US dominated the headlines this week but despite Wall Street's worries and weakness, the Straits Times Index proved reasonably resilient.

Yesterday, its 4.74-point fall to 3,216.92 brought its loss for the week to just 38 points or 1.2 per cent.

Trading volume between Monday and Thursday averaged $1.3 billion, dipping on yesterday to two billion units worth $1.2 billion.

Excluding warrants, there were 214 rises versus 207 falls so the session was mixed.

Wall Street was rocked early in the week by reports that US President Donald Trump may have asked ex-FBI director James Comey to drop the investigation into former national security adviser Michael Flynn's alleged Russian ties.

As the week progressed, the discussion centred on whether there had been any obstruction of justice and if so, whether it was an impeachable offence.

As far as markets were concerned, the fact that the White House has to deal with yet another major distraction to its healthcare reform and budget proposals suggests that it cannot pursue its economic agenda - one commentator described Mr Trump as looking increasingly like a "lame duck" who is unable to get anything done.

"The bigger story is that equities are richly valued, lack new drivers and carry the burden of some pretty big expectations."DBS's Lim Say Boon and Jason Low

If so, then the tax cuts and increased spending on which markets had been banking may not materialise for some time.

Closer to home, Singapore Airlines' (SIA)w report of a $138 million loss for the first quarter versus expectations of a $54 million profit brought savage pressure to bear yesterday, with the stock crashing $0.78 or 7.2 per cent to $9.98 on volume of 4.8 million.

The national airline reported a net profit of $224.7 million for the comparable period last year.

Apart from a provision for SIA Cargo, the bottom line was also hit by a plunge in operating profit due to deteriorating yields, competition and persistent cost pressures.

Yesterday, SIA announced that SIA Cargo will be re-integrated as a division within SIA in a move intended to improve efficiency through greater synergy with the wider SIA Group.

The re-integration is expected to be completed in the first half of next year.

In the second line, Noble Group's problems occupied plenty of attention while its shares occupied the upper echelons of the actives list every day.

Yesterday, the counter plunged $0.055 or 8.1 per cent to $0.625 on volume of 77.2 million units.

Although markets were gripped by the upheaval in Washington, DBS's chief investment officer Lim Say Boon and senior investment strategist Jason Low said in their latest Asian Insights that they do not expect a major meltdown, adding that US politics may be just a convenient trigger.

"The bigger and simpler story is that equities are richly valued, lack new drivers and carry the burden of some pretty big expectations.

"And a lot of those expectations have to do with the ability of Donald Trump to justify yet higher valuations - through tax cuts, fiscal stimulus, faster economic growth, and yet higher earnings," said Mr Lim and Mr Low.

"But Trump has been piling up the markets' doubts over his ability to deliver more than a new controversy every month. Or should that be a new one every day?"

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