Market Update 8/5/17 May 8, 2017

1) How do you expect STI to perform in the coming week?

Today STI rose slightly mainly due to the results of the French presidential election which is in line with analysts’ expectations. Other Asian markets were also impacted by it, such as the HSI which rose approximately 0.4% and the Nikkei 225 index which opened after their golden week holidays and rose approximately 2.2%. The STI has been edging higher over the past week, with the rally brought about mainly due to strong increases by banking related counters, ever since the positive 1st quarter result earnings reported by 2 of the 3 local banks. However, for the upcoming week, there may be some volatility expected due to the earnings reporting season, and a number of counters will be expected to go ex-dividend this week. Some of the STI component stocks which will release their earnings results this week includes OCBC tomorrow, Wilmar on Thursday, and ComfortDelgro, Genting Singapore, SIA engineering and ST engineering on Friday. While some of the more notable counters going ex-dividend this week includes Raffles Medical and Starhub.

2) Markets had pretty much priced-in Macron’s win in the French presidential elections, and with this risk event over, what will investors focus on next?

The presidential elections of France, and Korea in which the results will be released this week. As we all know by now, Macron won the French election, which is in line with analysts expectation, as his intention to stay in the EU is said to bring less disruption and uncertainty to markets.

However, personally I feel that the Korean presidential election which takes place tomorrow will be more impactful to Asian markets. At the moment, front runner Moon is said to have a high chance to win the election. So far his comments have been quite critical of the US, and should he win the election, we may be looking at a shift away from the US, and towards China, which is similar to what happened when president Duterte won the Philippines presidential election. Should that happen, we may be looking at a global power shift especially in the Asian regions and markets should be expected to move as well, due to the change.

Another factor which would impact local market will be oil prices. Oil prices hit a 3-month low last Thursday due to the increasing supply of US oil pipelines, and recovered slightly due to assurance from Saudi Arabia to Russia that they will extend the supply cut. However with Trump’s America First Energy policy and US shale oil erasing the OPEC cut effects, there seems to be a lack of options left to boost oil prices. Should oil prices continue to fall due to oversupply, local offshore and marine counters may be impacted negatively just like the rout last year.

Lastly, during the FOMC meeting in May, interest rates were not raised. Based on CME Fedwatch, there is an 83% possibility that the FED may raise interest rates by 25 basis points in June, which is in line with its goal of having 3 rate hikes this year. Though the markets is said to have already priced in this potential rate hikes, investors may still like to look out for any developments on it closer to the date.

3) What themes retail investors can consider?

Pertaining to the tensions between the US and North Korea, much jittery has been generated among investors. However, personally I feel that a war would not occur within these few months, and that it is more of a war of words at the moment. Hence investors can still look at investing in the market should they want to, but maybe look at a bottom-up approach instead, and to also look for fundamentally good counters which have their prices reduced either due to uncertainties or it going ex-dividend, and use dollar cost averaging to pick up the shares slowly. End of the day investors ought to look at the underlying assets and business model of the company to select companies with good results.

Should you want to know more information on the markets, ETFs or any other stocks, you can speak to your designated Trading Representative or a Dealer at a Phillip Investor Centre near you.