Red dominates the market

Red streaks washed over most Asian equities at closing yesterday as geopolitical risk sentiments soared following North Korea's nuclear test on Sunday.

Adding on to investors' fears was the news that South Korea's Defence Ministry had detected signs that the North is preparing more missile launches.

CMC Markets Singapore's analyst Margaret Yang wrote in a note: "The local share market is lacking fresh catalysts after second-quarter earnings.

"Therefore, external factors such as US economic data, geopolitical issues and crude oil prices are going to dominate movements in the local share market in the short term.

"Technically, the Straits Times Index (STI) is trading in a consolidation phase, with its immediate support and resistance levels at 3,240 and 3,300 points respectively."

Unsurprisingly, the benchmark STI fell 46.29 points or 1.41 per cent to close at 3,230.97, dragged by the three banking stocks - DBS Bank, OCBC Bank and United Overseas Bank - as well as counters of Singtel and Yangzijiang Shipbuilding.

The three banking stocks lost a combined 21.5 points.

Turnover amounted to 1.9 billion units worth $1.2 billion, working out to an average unit price of 63 cents per share.

Excluding warrants, losers beat gainers 320 to 129.

Red dominated the top 20 most active stocks as well, with Rowsley and QT Vascular leading the pack.

Regional equities also faced sell-offs from spooked investors. Hong Kong's Hang Seng fell 0.76 per cent, Japan's Nikkei 225 lost 0.93 per cent, South Korea's Kospi ended 1.2 per cent lower and Australia's S&P/ASX 200 index retreated 0.4 per cent.

Bucking the trend was the Shanghai Composite Index, which went up 0.37 per cent.

SHORT-LIVED

Given the geopolitical tension, Citi Research said it expects some short-term risk aversion trades such as US dollar buying, spike in volume and equity-market correction, but it noted that past market moves on North Korea had tended to be short-lived.

It said: "So unless the probability of a military strike or a North Korea regime collapse rises (both unlikely), this time may play out similarly.

"That said, the nuclear test is likely to result in more United Nations sanctions on North Korea, and even China may restrict energy exports.

"Over the medium term, we expect the US and its allies to build up defence and deterrence capabilities in the region, and China may have to live with a more militarised North Asia."

Over the weekend, global investors brushed off the softer-than-expected US labour market data in August and pushed the S&P 500 Index higher.

On this, DBS's chief investment office said "while investors stay sanguine on equities given the resilience of corporate earnings as well as the lack of other viable investment alternatives, they are also mindful that valuation and the duration of the current rally is looking stretched" and "hedging downside risks while participating the ride up appears to be the dominant theme".

Separately, US refineries might be restarting but Nomura's note said Hurricane Harvey is likely to spike margins for refining and select chemicals.

It estimated that 20 per cent to 35 per cent of US refining and ethylene capacity was shut down as of end August.

"We believe the petroleum market is fundamentally headed towards tighter supply, with global crude distillate unit expansions likely to be lighter than historically," it added.

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