Business

Western markets' 'relief rally' lifts local stocks

STI up 19.90 points to 3,163.93; banks, property counters and conglomerates see gains

The relief rally, which engulfed Western markets on Monday after the first round of France's presidential election produced no shocks, spread to this region yesterday, pushing the Straits Times Index 19.90 points higher to 3,163.93.

The broad market was firm with 272 rises versus 198 falls excluding warrants.

Turnover improved from Monday's $1.1 billion to $1.2 billion with volume at 2.7 billion units.

Wall Street and Europe had rallied sharply overnight after news that the top two candidates after France's Sunday election were the ones the markets had hoped would win - Mr Emmanuel Macron, who favours France staying in the European Union, and Ms Marine Le Pen, who favours a Frexit or exit from the Union.

All polls show that Mr Macron should win handsomely in the May 7 run-off between the two.

Whatever the case, the stark reduction in European geopolitical risk brought risk appetites back up, aided by pronouncements from the Trump administration of "massive'' tax cuts.

In the STI, gains were registered by a variety of stocks, ranging from banks, property counters and conglomerates such as Keppel Corp and SembCorp Industries.

In the Reit segment, Mapletree Industrial Trust (MIT) ended $0.025 higher at $1.82 with 5.2 million units traded.The trust on Monday reported a distribution per unit (DPU) of $0.0288 for its fourth quarter ended March 31, up from $0.0281 a year ago.

It also reported a 2.7 per cent increase in amount available for distribution to $51.75 million.

DBS Vickers said it is maintaining its "buy'' and $1.94 target for MIT on the back of a steady DPU growth profile of 3 to 4 per cent per annum, higher than MIT's industrial peers.

"The Reit offers high earnings visibility, and we have confidence that the manager has the flexibility to execute on more developments to exploit its conservative balance sheet,'' said the broker.

OCBC Investment Research also maintained a "buy'' on the counter and raised its target price from $1.88 to $1.93.

In the second line, shares of components manufacturer Memtech International jumped $0.05 or 6.3 per cent, to $0.84 on volume of 2.9 million.

UOB-Kay Hian yesterday initiated coverage of the company by describing it as "an under-appreciated gem'' and set a $1.05 target price using a price-earnings methodology.

"Memtech ended last year with a net cash position of US$24.7 million (S$34.4 million) versus its market capitalisation of S$111 million,'' noted the broker.

"This means that 32 per cent of Memtech's market value is backed by cash... Memtech has never stopped paying dividends to shareholders even when faced with challenging conditions."

On the French result, Nomura said it has reduced a major geopolitical risk and against an improving global economic backdrop, the market is back to being "risk-on''.

GEOPOLITICAL RISKS

"For Asia, geopolitical risks around North Korea still loom, but against that are reasons why we expect the risk-on environment to spill over to Asia, at least in the near term,'' it said.

"First, a strong Asian export recovery is under way, and there is increasing evidence that it is not only due to price effects; export volumes are strengthening too.

"Second, notwithstanding the financial risks, China's economic growth has gained traction again with nominal gross domestic product growth of 11.8 per cent year-on-year in Q1, the quickest pace in 20 quarters."

Bank of America Merrill Lynch (BOAML) said it will be interesting to see if Ms Le Pen will continue to advocate Frexit in the campaign for the second round.

In any case, BOAML noted that Mr Macron has made European integration and a strong relationship with Germany the centre of his narrative. It believes markets will see the French election as effectively the referendum and will start pricing Frexit risk.

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

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