Q1 shares rally likely to ease for S’pore

SINGAPORE — The solid performance of the local stockmarket in the first quarter of this year may have lifted Singapore out of the gloom from late 2016, but analysts caution that the Republic is not in the clear yet. A pick-up in trade has helped drive demand in the region and the improved global market sentiments post-United States presidential elections has also contributed to a better scorecard.

Going forward, however, experts who spoke to TODAY are less optimistic about Singapore’s equities, saying the upward trend is already displaying signs of faltering. The sentiment-driven market will continue to be influenced by geopolitical risks, political issues and the US Federal Reserve’s tightening of policy.

“The common stocks, Real Estate Investment Trusts (Reits) and Unit Trusts listed on the Singapore Exchange (SGX) collectively saw green in the first quarter of 2017, gaining by approximately 8.9 per cent. While the Straits Times Index (STI), which covers large cap equities, saw a stellar gain of about 9.5 per cent during the same period,” said Mr Woon Tian Yong, investment analyst at Phillip Futures.

IG market strategist Ms Pan Jingyi noted that the Asian markets’ performance as a whole was better than expected. Comparing benchmark indices, Singapore’s local bourse had outperformed in the first quarter of 2017, helped by a lift in growth outlook for the economy. “Among sectors, property stocks have been going strong in the Singapore equity market, clocking some of the best gains on the local STI,” she said.

The first quarter saw a particularly cohesive period in its broad-based rally in Singapore equities, due in part to the return of confidence after the US presidential elections, said Mr Woon.

“Global equity markets (including Singapore’s) saw no major impediments to once again reach for the skies,” he said. “The case was even more substantiated in the context of Singapore’s equity markets, as it saw largely beat down prices for most of 2016, thus missing out on much of the gains seen in equity markets elsewhere in the same period.

“This resulted in Singapore equities broadly trading at a relative bargain as compared to their peers in the US equity space, drawing bargain hunters and buyers in general back to the markets.”

Going forward, Mr Nicholas Teo, trading strategist at KGI Securities (Singapore) noted that it “would be tough” to expect a similar reading as from the first quarter. The market could see a pull back, he said.

Mr Woon warned that the upward trend seen in the first three months of the year is already displaying initial signs of momentum fatigue.

Experts are keeping an eye on the “potentially upsetting developments” in geopolitics between the US, the Middle East, China, North Korea and Europe, where elections in France are yet to play out.

The US monetary policy, which served as a key guidance for markets at the start of the year, looks to continue to influence the market going forward.

“Markets may see some signs of moderation in what could be an eventful second quarter,” said Ms Pan. “The change in situation at the start of April highlights how geopolitical tensions may spark fear within the markets. Furthermore, the highly anticipated US pro-growth policies have yet to see the light of day, which places the pressure on US earnings to support markets. Looking at the local STI, a strong psychological barrier at 3,200 has capped the rally and could remain a difficult hurdle to cross.”

Defensives, such as Reits, may continue to appeal to the market, while bank stocks could see further rallies from factors such as the US interest rate tightening cycle coupled with an expected gradual improvement of the oil-and-gas sector.

The property sector on the other hand, which has clocked some of the best gains on the local STI in the first quarter, is likely to stand pat.

“While the Singapore Government has recently announced some changes to the property cooling measures, it is not expected for these changes to amount to a major easing in the overall policy. This, coupled with an imminent upward trend for Singapore’s interest rates in light of the US Fed tightening cycle is expected to continue to hamper significant upswings on property prices,” said Mr Woon.

“However, watch for the number of new mortgage originations, as a significant and sustained pick-up on this reading may signal renewed demand in this space.”

Meanwhile, the oil-and-gas sector continues to unsettle experts, with concerns over earnings visibility and pressures faced by companies even as oil prices firm up. Experts however still see it as a potential wildcard. Developments in the crude oil space may keep equity prices supported or even elevated, said Mr Woon.

“With the Organisation of the Petroleum Exporting Countries (Opec) displaying high levels of adherence to its output cuts, coupled with recent build-ups of geopolitical uncertainty in the Middle East, we may well see Brent Crude oil prices staying supported at levels close to or slightly above US$60 (S$84) a barrel,” he said.

Higher crude oil prices generally bode well for the oil-and-gas sector, but the positive impact may take time to materialise, he added.