Markets Insights

Stage set for major week, and caution is the word

Online retailer Amazon's surprise US$13.7 billion (S$18.9 billion) acquisition of supermarket chain Whole Foods last week rattled stocks of United States retailers and food companies such as Walmart, Target, Kroger and Costco, wiping billions of doll
Online retailer Amazon's surprise US$13.7 billion (S$18.9 billion) acquisition of supermarket chain Whole Foods last week rattled stocks of United States retailers and food companies such as Walmart, Target, Kroger and Costco, wiping billions of dollars from their market capitalisation.PHOTO: EUROPEAN PRESSPHOTO AGENCY

In focus are Brexit talks, US tech stocks' performance and MSCI's likely inclusion of China A-shares

The mood across Asian markets remains cautious as investors gear up for another big week.

The Straits Times Index dipped 0.67 per cent last week, even after the United States Federal Reserve announced its widely anticipated decision to raise its benchmark interest rate as a sign of confidence in the world's largest economy.

This week, Britain begins negotiations to leave the European Union (EU) by end-March 2019, following a tumultuous election that saw Prime Minister Theresa May losing her parliamentary majority.

Formal Brexit negotiations will start today, with talks set to continue throughout the summer. Analysts say sterling is set to remain volatile due to Brexit uncertainty.

US technology stocks will also remain in focus after the past week's wobbly performance, as investors moved away from what had been the year's best-performing sector.

The weakness in US tech stocks dragged markets in Europe, Japan and Asia lower last week as the sell-off spilt overseas. Tech-related shares were among the prominent losers on most major indices.

FAITH IN TECH STOCKS

The major US tech companies have strong cash flow and no debt - they're not necessarily overvalued. It would be rash to describe the whole technology sector as a bubble. (Last week's fluctuations) appear to be just a blip.

MR RICHARD TITHERINGTON, JP Morgan Asset Management chief investment officer of emerging markets.

The S&P 500 ended up 0.03 per cent on Friday but the tech-heavy Nasdaq went down 0.22 per cent.

JP Morgan Asset Management chief investment officer of emerging markets Richard Titherington, in an interview with The Straits Times, said: "The major US tech companies have strong cash flow and no debt - they're not necessarily overvalued. It would be rash to describe the whole technology sector as a bubble. (Last week's fluctuations) appear to be just a blip."

Investors will also be watching for further fallout from online retailer Amazon's surprise US$13.7 billion (S$18.9 billion) acquisition of supermarket chain Whole Foods.

The move rattled stocks of US retailers and food companies including Walmart, Target, Kroger and Costco - the largest grocery retailers - wiping billions of dollars from their market capitalisation.

Closer to home, Asian market could find index-provider MSCI's annual market classification review a key event to follow. MSCI will decide tomorrow whether to include a group of China A-shares in its main emerging market index.

If approved, it would give investors easier access to the China markets, create more liquidity for the shares and prompt funds all over the world to pour billions into the country's stocks.

For China, acceptance by MSCI would mark a key step for Beijing as it seeks to open up its financial markets and attract foreign capital.

The inclusion would also indirectly help lift regional markets as more funds flow into China, noted IG analyst Pan Jingyi.

The Singapore market could find focus on manufacturing and inflation data for May, due on Friday.

The numbers could reveal whether the manufacturing sector's strong growth - driven by surging global demand for semiconductors and related equipment - will continue in the coming months.

This follows from non-oil domestic export data out last week, which showed electronics shipments continuing to soar in May but overall exports still slid 1.2 per cent. It was the second straight month of contraction after five months of growth.

A version of this article appeared in the print edition of The Straits Times on June 19, 2017, with the headline 'Stage set for major week, and caution is the word'. Print Edition | Subscribe