Business

As US-N. Korea tensions rise, STI falls

Straits Times Index drops 43.52 points or 1.3 per cent to 3,279.72, with turnover increasing in recent days

Tensions surrounding North Korea's planned missile tests and the potentially harsh US retaliation that might ensue brought the sellers out yesterday and sent the Straits Times Index down 43.52 points or 1.3 per cent to 3,279.72.

For the week, the index lost 47 points or 1.4 per cent. Turnover in recent days has increased - on Thursday, a hefty $1.8 billion was done, falling back yesterday to a still-decent 2.7 billion units worth $1.5 billion.

On Thursday, North Korean war rhetoric triggered a large correction on Wall Street, its largest since the technology sell-off of May 17. This came after US President Donald Trump told reporters that his "fire and fury" warning to North Korea might not have been enough.

He said the North "can be very nervous" if it acts on either the US or its allies, a reference to Pyongyang's earlier response that it would send missiles to the US territory of Guam.

Mr Trump also warned that "things will happen to them like they never thought possible".

Mr Rob Carnell, head of Asia research at ING Asia Pacific, said the situation was "beginning to develop into this generation's Cuban Missile Crisis moment, with recent leaked intelligence reports alleging that North Korea now has miniaturised its nuclear warheads, which extends the range of its missiles, and potentially brings US targets into reach".

Growth is broadening to services, which will help offset the moderation in manufacturing growth in the second half. Maybank Kim Eng on maintaining its full-year GDP forecast at 3 per cent

It was the banks that propped up the STI on Thursday, and so it was that banks led the index lower yesterday.

DBS Bank, which traded ex-dividend, led the way with a 46 cent or 2.2 per cent fall to $20.80 on a volume of 5.5 million. It is paying a dividend of 33 cents.

Among the other index stocks that have been in the news lately is Yangzijiang Shipbuilding, thanks mainly to expectations of superior earnings. The counter's stunning run-up was curbed when it dropped $0.065 to $1.53 with 40 million traded.

One former index component that has also been in the news is Noble Group, which on Thursday announced a second-quarter loss of US$1.75 billion (S$2.4 billion), including a one-off charge of US$1.2 billion.

Yesterday, its shares jumped $0.065 or 18.6 per cent to $0.415 on turnover of 45 million.

Meanwhile, the Government has raised its full-year gross domestic product (GDP) growth forecast to 2.5 per cent.

Maybank Kim Eng said it is maintaining its full-year GDP forecast at 3 per cent for the year and 2.4 per cent for the next.

"Growth is broadening to services, which will help offset the moderation in manufacturing growth in the second half," said the broker.

"The Ministry of Trade and Industry was more positive, highlighting that the potential downside risks have eased."

Goldman Sachs Asset Management (GSAM), in its Global Fixed Income weekly update, said it has increased exposure to the US dollar versus other developed market (DM) currencies and reduced exposure to emerging market currencies.

"Based on cyclical factors, such as interest rate and terms of trade differentials, the US dollar appears undervalued versus other DM currencies and is also beginning to look cheap based on long-term valuation metrics versus certain currencies, including the Australian and New Zealand dollars," said GSAM.

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