Business

Stocks hit by UK, US political risks

The Singapore Exchange recorded more falls than rises yesterday, but the STI was cushioned by Jardine counters

The local stock market kicked off the week on a soft note, chalking up 169 rises versus 297 falls, excluding warrants.

Political uncertainty in the UK and this week's US Federal Open Market Committee meeting were among the concerns, as was a shaky Wall Street, which is nervously watching events unfold in Washington surrounding Russian involvement in last year's presidential election.

The Straits Times Index also weakened, though thanks to support for Jardine Matheson, Jardine Strategic and Cycle & Carriage, its loss was limited to just 5.85 points at 3,248.34 compared to the 1.24 per cent fall suffered by the Hang Seng Index.

The Dow futures, in the meantime, traded in the red throughout the day and had lost about 30 points at 5pm.

Banks had a mixed outing, with DBS and UOB falling and OCBC unchanged.

In the property sector, City Developments dropped $0.09 to $10.86 on volume of 625,400, while CapitaLand added $0.01 at $3.61 with 6.9 million traded.

In the Reits segment, PhillipCapital initiated coverage of CapitaLand Mall Trust (CMT) with a "neutral" recommendation and a $2.01 target price.

The broker said the retail business looks set to bottom soon and stabilise going forward in H2 2017, and this should benefit CMT.

The counter rose $0.01 to $1.935 on volume of 5.9 million.

Shares of Golden Agri topped the actives list when they closed unchanged at $0.37 on turnover of 41.3 million.

Other actives included AddValue Technologies, Moya Asia and Imperium Crown.

On the uncertainty in the UK following last week's elections, Bank of Singapore's investment strategist James Cheo in a June 9 report said the result, which saw British Prime Minister Theresa May unexpectedly lose her majority in Parliament, will not have an adverse impact on financial markets.

"European growth remains strong, and its recovery will be unaffected by United Kingdom political uncertainty," said Mr Cheo.

"Our current defensive asset allocation remains relevant. As this is an idiosyncratic event, there is no need to make any changes to our asset allocation."

DBS in its Q3 Economics Markets Strategy said it believes the US Fed will not stop with this week's rate hike.

"Why would it? Everything in the economy is back to normal, unemployment has fallen to 4.3 per cent, and inflation has been trending north for more than a year.

"And, as San Francisco Fed President Williams puts it, 'The Fed still has the pedal to the metal,'" said DBS.

"Policy rates need to rise to 2.75 per cent to 3 per cent to be considered 'normal'. At one hike per quarter, it would take two years to get there.

"That is a long time. We do not expect the Fed to waste any of it.

"Best plan on one hike per quarter through mid-2019, with the risk that the Fed has to up the pace before then."

Morgan Stanley (MS) in its Global Strategy Mid-Year Outlook said that for equities, it favours the US and Japan over Europe and emerging markets.

"We think that this view differs from the consensus. Japan offers deep value, while the US offers quality and beatable estimates.

"Strong performance year-to-date has left less upside to our targets in Europe," said MS.

It said that for the last six months, improving growth and contained inflation have helped push stocks higher.

"We think this trend can persist through year-end," said MS.

"Our economists see more growth and less inflation than the consensus, a potent combination that should allow the withdrawal of central bank liquidity to remain gradual through the end of the year."

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

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