Markets insights

Investors set to vote with their feet after Greek ballot

"Oxi" (no) and "nai" (yes) posters for the Greek referendum. A "no" outcome will rock markets, but the impact will not be long term, but a "yes" outcome will still not result in any quick resolution.
"Oxi" (no) and "nai" (yes) posters for the Greek referendum. A "no" outcome will rock markets, but the impact will not be long term, but a "yes" outcome will still not result in any quick resolution.PHOTO: AGENCE FRANCE-PRESSE

Flight to quality expected as funds seek safe haven; mood also bearish in China

Following a week of apprehension as investors pondered their strategies ahead of Greece's referendum yesterday, one should be mindful that its impact on regional markets may be shortlived no matter which way voters go, say analysts.

The referendum yesterday was to decide whether Greeks accept the austerity measures proposed by creditors in exchange for further bailout funds. A "no" outcome will potentially spell the country's exit from the euro zone, which may rock financial and capital markets everywhere.

Results were not yet out as of press time, but opinion polls showed that Greeks were evenly split on the matter.

"Whatever happens, there will be knee-jerk reactions. A 'no' outcome will certainly rock the markets. But the impact will not be long term, just as a 'yes' outcome is still a very long way from the resolution of the Greek debt crisis," CMC Markets analyst Nicholas Teo said.

At home, concerns over Greece did not trigger a major retreat as some expected. The benchmark Straits Times Index (STI) gained 0.66 per cent last week to end at 3,342.73 points despite a scare on Monday, when the index slumped 1.23 per cent.

This was markedly different from the mood on Wall Street, where the Dow Jones Industrial Average was hit by its biggest weekly drop since April, while S&P 500 had its worst week since March. In the week ahead, local stocks may in fact edge up due to other non-Greece factors, Mr Teo noted.

"I believe the market will go moderately higher this week as overseas funds take their flight for safety," he said. "That was already evident from last week's STI gain, which unfolded alongside the major whack-down in China."

China's main indexes have slumped 30 per cent in the past three weeks, as fears intensify that a major crash is imminent.

A very concerned Beijing has been stepping up its efforts to calm the market, including decisions in the last two weeks to cut the interest rate, relax margin-lending rules and curb new listings. At the weekend, major brokers and fund managers there have also pledged to invest at least US$19 billion (S$25.6 billion) to steady the stock market.

Despite the bearish signs, most market watchers believe the Chinese market is not teetering on the edge as there is no lack of political will and capacity in China - including further cuts to its relatively high 4.85 per cent interest rate to boost liquidity - to prevent a major crash.

Back in Singapore, banking continues to be a key market theme as DBS Group Holdings, OCBC Bank and United Overseas Bank are certain to enjoy better spreads when the US Federal Reserve hikes interest rates. The bank stocks are also not considered overpriced, given their price-to-earnings ratio ranging from 10 to 12.

The offshore and marine sector, however, is still in choppy waters as oil prices are not showing any signs of stabilising.

It does not help that key plays in the sector - such as rig-making blue chips Sembcorp Marine and Keppel Corp - are still struggling to get new major orders.

Mr Teo said: "These companies have shown that they are slow to benefit from oil price gain. They are more susceptible to contract trends, in which case, they have yet to win major new contracts since the start of 2015. Things aren't looking good for them, and may look worse still going forward."

SembMarine fell 12.9 per cent so far this year to $2.84, while Keppel dropped 7 per cent to $8.23.

A version of this article appeared in the print edition of The Straits Times on July 06, 2015, with the headline 'Investors set to vote with their feet after Greek ballot'. Print Edition | Subscribe