Business

STI falls on UK poll move, Wall St loss

Citi sees geopolitical risks continuing to dominate short-term price action, keeping investors in Asia anxious

A confluence of factors, chiefly British Prime Minister Theresa May's surprise decision to call a snap election in the UK and a lower closing in Wall Street on Tuesday, led share prices in the local bourse to close lower for the fourth straight trading day yesterday.

The key Straits Times Index (STI) fell 11.26 points or 0.4 per cent to finish at 3,126.28. Most Asian markets were lower except for Japan, where the Nikkei 225 bucked the trend with a higher close of 0.07 per cent.

China's main indices fell for the fourth consecutive session with the Shanghai Composite losing 0.81 per cent and Australia's ASX fell 0.6 per cent.

On Tuesday, the Dow Jones Industrial Average closed 0.6 per cent lower after Goldman Sachs shocked Wall Street with its earnings miss. The S&P 500 shed 0.3 per cent and the Nasdaq fell 0.1 per cent.

Uncertainty over the outcome of the UK election and how the Brexit negotiations could play out could crank up volatility in the equity markets, say analysts. Sellers are dominating the Asian markets, said CMC Markets analyst Margaret Yang Yan.

"This reminds investors of the old saying, 'sell in May and go away', which suggests that stock markets will incur heavy selling in the month of May, due to seasonality as well as psychological hints, which in turn reinforce the selling pressure," she said.

She added that this year, the "sell in May" scenario has been brought forward given the many key risk events that have come together.

These include corporate earnings, the French election and US President Donald Trump's foreign policy, chiefly towards Syria and North Korea.

As such, Citi Research expects political and geopolitical risks, including the persistence of hawkish rhetoric around North Korea's missile programme, to continue to dominate short-term price action and keep investors in Asia anxious.

PROPERTY STOCKS

In a report titled Breather for property stocks, DBS Research said it expects investors' euphoria over the start of a multi-year relaxation trend of current property curbs to fade in the coming weeks or months.

It pointed out that stocks of Singapore property developers have re-rated higher by nearly 20 per cent year to date and are trading at 0.86 times price-to-book ratio - similar to the post-global financial crisis mean and a near-term target for property developers.

As such, the house expects a pull-back in the FTSE ST Real Estate Holdings Index by some 3.5 per cent in the weeks ahead. Turnover in the local bourse yesterday came in at 2.7 billion shares worth $1.24 billion, with losers outpacing gainers 293 to 179.

Singapore's three banking stalwarts led the losses, with DBS losing 13 Singapore cents or 0.7 per cent to $18.79. UOB fell six Singapore cents or 0.3 per cent to $21.54 while OCBC shed two Singapore cents or 0.2 per cent to $9.53.

In a first-quarter results preview for the banks, Citi Research flagged lingering asset quality issues although it expects scrutiny on oil and gas asset quality to peter out in the second half of 2017.

Singtel put on five Singapore cents or 1.3 per cent to $3.76. According to Bloomberg Intelligence, the telco may struggle to boost mobile revenue now that TPG Telecom is set to compete in both Singapore and Australia.

The research arm of Bloomberg further said that Singtel, controlled by Temasek Holdings, may look to raise its stakes in regional telecom operators to blunt the impact of heightened competition in its two largest markets.

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

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