Monthly Strategy - DBS Research 2016-09-26: Move aside Yellen, it’s the Donald-Hillary show next

Monthly Strategy - DBS Vickers 2016-09-26: Move aside Yellen, it’s the Donald-Hillary show next .SI

Monthly Strategy - Move aside Yellen, it’s the Donald-Hillary show next

  • Still guarded on 3Q results season and US presidential election.
  • MAS likely to maintain status quo.
  • STI to trade within 2750 to 2950 till year-end.


Still guarded on 3Q results season and US presidential election. 

  • With Singapore’s corporate earnings recession trend still intact and the recent slew of weak manufacturing and services-related economic data releases, investors’ mood is likely to stay guarded heading into the 3Q results season in October. 
  • Investors will also likely stay on the sidelines in the run-up to the US presidential elections on November 8. 
  • We expect some measure of US equity market choppiness or volatility heading to that date. Historically, US equity indices tend to be more volatile during presidential election years where the incumbent is not seeking re-election.


MAS likely to maintain status quo.

  • The semi-annual MAS monetary policy statement and macroeconomic review will be held later than October 14.
  • With Singapore’s growth outlook likely to remain dim, there will be expectations among investors that policies may become more accommodative.
  • However, our Singapore economist thinks MAS will likely maintain status quo as the exchange rate policy was already eased to zero appreciation of the Sing NEER back in April.
  • The shift to neutral back then was a pre-emptive move to guard against further downside risk to growth. The current monetary policy stance already served as a cushion for the economy. Our economist also believes that fiscal stimulus/off-budget measures to prop up the economy are also unlikely at this time. An expansionary fiscal policy is more likely at the Budget 2017 next year.


Guarded investors’ mood to extend into October with the 3Q results season ahead… 

  • Investors’ mood is likely to stay guarded heading into the 3Q results season in October. The most recent 2Q results season saw a continuation of the earnings recession that started since early 2015. 
  • The overall earnings cuts were also the worst in recent years. With recent data releases that showed July NODX, industrial production, retail sales and bank loans growth still stuck in negative territory and the O&G sector still in the doldrums; investors’ confidence is likely low that an end to the earnings downgrade trend is in sight.


Followed by the November US Presidential Election 

  • The FED left interest rates unchanged at the September FOMC meeting and continued to signal a December rate hike. With the FED likely to leave rates unchanged at the November 2 FOMC meeting, investors will also cast a watchful eye on the US presidential election on November 8.
  • We expect some measure of US equity market choppiness or volatility heading to that date. Historically, US equity indices tend to be volatile during presidential election years where the incumbent is not seeking re-election. With the S&P500 up 6.5% YTD and the high correlation of global equity markets with the US, investors will likely stay on the sidelines in the run-up to the November elections.


STI to trade within 2750 to 2950 till year-end 

  • Sentiment for the Singapore equity market is likely to remain fragile in October heading to the November US Presidential election, ongoing corporate earnings recession and rising technical recession risk.
  • Our view back in end-August was for the STI to head down to 2714 by end-October during the seasonally volatile period from September to October. The month of September witnessed a “moderate” volatility level with the STI hitting a low of 2790 and a high of 2910.
  • At the same time, we observed that 
    1. the STI has been resilient at just slightly below 2800 level to the downside, and 
    2. the short-term downswing that started from a high of 2960 in mid-July also appears to be tapering off.
  • We continue to expect a choppy and modestly volatile October but with the two observations above in mind, we lift the near-term support for the STI to 2750. 
  • In addition, as the corporate earnings recession trend currently remains intact, we maintain our view that the YTD high for STI has already been seen at 2960 back in July, which is just 80pts below 13.64x (average) FY17F PE.
  • We expect the STI to trade within a range from 2750 to 2950 through the rest of the year with technical resistance levels observed at 2865 and 2905.




Janice CHUA DBS Vickers | YEO Kee Yan CMT DBS Vickers | http://www.dbsvickers.com/ 2016-09-26




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