Market rally here due to more than Trump factor, say watchers

The Straits Times Index (STI) jumped by 0.44 per cent on the back of a 1.46 per cent surge by the Dow Jones Industrial Average.
The Straits Times Index (STI) jumped by 0.44 per cent on the back of a 1.46 per cent surge by the Dow Jones Industrial Average.PHOTO: ST FILE

The Singapore stock market is cheering on the rampant Trump bull on Wall Street that has touched dizzying heights since Mr Donald Trump's presidential election victory. Yesterday, the Straits Times Index (STI) jumped by 0.44 per cent on the back of a 1.46 per cent surge by the Dow Jones Industrial Average.

This followed Mr Trump's first speech to Congress on Tuesday night (Wednesday morning, Singapore time) calling for a US$1 trillion (S$1.41 trillion) infrastructure plan. Since his Nov 8 victory and through his controversial early days in office, the Dow Jones has skyrocketed by 15.2 per cent to a record high of 21,115.55, while the STI has jumped by 11.2 per cent to 3,136.48.

Market watchers agreed that local sentiment has taken its cue from the so-called Trump trade in the United States, but a separate set of domestic factors are also at work.

"In the US, obviously there's a lot of buy-in on Trump's promises of tax reforms, infrastructure spending and banking deregulation," said CMC Markets analyst Margaret Yang. "Even now, it's hard to say if these hopes have been validated, as his plans still need congressional approval.

"In Singapore, however, Trump is just part of the reason. The local market has been up mainly on the rebound of banking and oil and gas stocks."

DBS Group Holdings, OCBC and United Overseas Bank together represent the STI's biggest sectoral component. The trio have gained between 12 and 24 per cent since Mr Trump's victory. The sector has gained from expectations of rate hikes, which are set to help banks lift margins.

Meanwhile, oil and gas stocks have rebounded, as oil prices stabilised and sentiment improved from the "over-pessimism" last year, Ms Yang said.

Sembcorp Marine, for instance, has garnered total returns of 38 per cent so far this year, while Ezion Holdings has returned 81 per cent since its trough in September.

But overall, the Singapore market is just playing "catching up" after last year's doldrums, remisier Alvin Yong said.

He added: "I am cautiously optimistic about Singapore's outlook, but I don't think it'll be a perfect reflection of the US market momentum. A lot still depends on the foreign fund flows. If they keep coming in, we can hope for STI to hit 3,300."

In that regard, the US and Singapore are not necessarily in sync.

Ms Yang said: "Investors should take note that what the US market likes may not be good for Singapore. For instance, with recovery and the stronger US dollar, foreign funds will be withdrawn from Asian markets back to dollar assets."

Another factor is valuation. "STI's price-to-earnings ratio is now around 13 to 14 times, up from 11 times last year. The five-year mean is at around 13.5 times, so the stocks are now more fairly valued," she added.

A version of this article appeared in the print edition of The Straits Times on March 03, 2017, with the headline 'Market rally here due to more than Trump factor, say watchers'. Print Edition | Subscribe