Tuesday 4 November 2008

US Election Rally May Quickly Unwind In Singapore

There’s a fair chance we’ll discover the identity of the new U.S. President during the Asian trading day on Wednesday, so Asian markets may be the first to deliver their verdict on the outcome.

1 comment:

Guanyu said...

US Election Rally May Quickly Unwind In Singapore

By Kirsty Green
4 November 2008

SINGAPORE (Dow Jones)--Singapore investors have got poll fever as traders put a 5.0% gain for the Straits Times Index on Monday down to the imminent U.S. election.

One Singapore-based trader says the U.S. elections -even before the vote -have given investors the excuse they needed to buy back after the market recent rout, which by the middle of last week had left the STI nearly 60% lower than at the start of the year; “people were looking for a reason to buy and they found it in the U.S. election.”

The hope is a new U.S. administration will tackle the credit crunch and accompanying economic recession with a fresh impetus. “Expectations that the new government will have to get down to the job of turning around the U.S. economy may continue to support optimism that the worst is over for holders of equities,” say analysts at CIMB.

There’s also probably a perception that if the Democrats win, they may be more willing to pump public funds into helping out the economy, rather than leave its fate to unchecked market forces; they may also be more willing to tighten the regulatory noose on banks and other financial institutions.

But some fear that election fever may quickly give way to an election hangover Indeed, the STI is already unwinding some of Monday’s strong gains, currently down 2.1% at 1844.02.

“It’s not a good enough reason to buy,” says another Singapore-based trader. “It looks as if Obama is going to win and the Democrats are not good for Wall Street - there is a risk we see a change of policy with more rules and regulations,” he adds.

And when the election buzz fades, the global economy will still face the same very real problems that were bedevilling markets before the ballots were cast - the threat of worldwide recession and slowing corporate earnings.

Those concerns are particularly relevant to Singapore right now, given the recent data showing the economy has indeed slipped into recession as industrial output and exports both slow. As well, Singapore is battling slumping housing prices at a time inflation is still high, and although some analysts say the stock market offers value, the risk of earnings forecast downgrades means shares are finding it hard to perform.

Westcomb Securities research head Goh Mou Lih says history can be telling: “When there is a change in President, history shows us that the Singapore market normally goes down,” he says. But he adds the last time that happened was in 2000, and that could be blamed on the inconclusive outcome of that year’s Presidential vote.

Gabriel Gan, head of sales trading at AmFraser, says the U.S. election will inject an element of uncertainty into the near-term outlook for the stock market.

“Whenever a new candidate enters the White House, the market trends to drift,” he says. And a poor performance for the U.S. stock market usually means a lacklustre ride for Singapore shares given that Asian markets tend to take their cue from Wall Street.

Mind you, this time it could be the Asian markets that set the pace.

There’s a fair chance we’ll discover the identity of the new U.S. President during the Asian trading day on Wednesday, so Asian markets may be the first to deliver their verdict on the outcome.

It will be interesting to see what that verdict is.