Singapore Stock Market Outlook (June 2018) - A Temporary Slumber
- The FED is likely to hike rates by 25bps to 2% this month. Consensus expects a total of three rate hikes this year (previously 3-4) on latest Eurozone uncertainty, trade war concerns and a FED that is more tolerant of inflation overshoot.
- Meanwhile, OPEC members will debate on exiting a supply cut agreement at the 22 June meeting after Saudi Arabia and Russia proposed a revival in oil production.
- STI’s May decline is in line with our view that the 2-mth period from May-June should be net negative in a World Cup year. Expect trading activity to quieten further this month with the June school holidays and mid-month World Cup tournament, picking up again in early July.
- However, we do not see much downside for the STI following May’s tumble. Support at 3415 or slightly below, pegged to 12.76x (-0.5SD) 12-mth fwd PE.
Zabivaka arrives early
- STI tumbled 5.1% m-o-m in May 2018 as Italy’s political turmoil rekindles fear of exit from Eurozone, lack of positive catalyst post ‘ex-dividend season’ and sparse buyers ahead of June World Cup and school holiday.
- Financials (UOB, OCBC), consumer goods (Thai Beverage, Golden Agri) and Telecom (SingTel, Starhub) underperformed the most.
- Consumer services (Genting Singapore, SIA, ComfortDelgro) outperformed, the only positive sector in May.
June Key events
- FOMC meeting - FED likely to hike rates by 25bps to 2%, consensus now expects a total of three rate hikes this year (previously 3-4) due to latest Eurozone uncertainty, trade war concerns and a more dovish FED.
- Start of FIFA World Cup - Expect trading activity to quieten throughout June, picking up again in early July.
- OPEC meeting – Possibility of OPEC and its allies exiting a supply cut agreement will be debated. Saudi Arabia and Russia propose a revival in oil production while members Venezuela and Iran will likely object.
Bonds rally on flight to safety, ‘tolerant’ FED
- Flight to safety on trade war worries and political uncertainty in Italy that could see a re-election and its exit from Eurozone
- FED signals its tolerance to inflation ‘overshooting’ above 2% without raising rates aggressively.
- US 10-yr yield down 24bps to 2.87%, MAS 10-yr yield down 11bps to 2.57% in the last two weeks of May.
- Near-term technical action - US 10-yr yield to trade from 2.70 to 2.95.
- Respite for yield plays and S-REITs.
June likely a quiet month, to pick up in July
- STI’s May 2018 decline in line with our view that the 2-mth period from May-June should be net negative with subdued trading activity due to World Cup. (see report: Singapore Monthly Strategy: Take A Break, Enjoy The Game)
- Daily average value of shares traded on Singapore exchange down 10.2% in May to S$1,207mil compared to of S$1,344m YTD.
- Expect trading activity to quieten further this month as World Cup tournament and June school holiday starts.
- Trading activity to pick up from beginning July.
“Rectangle pattern” continues for now, support at 3400 limits downside
- Our earlier view for a ‘rectangle’ rather than a triangle consolidation turning out to be true.
- Straits Times Index (STI) 2018 Year End objective remains 3850.
- STI support at 3415 or slightly below, pegged to 12.76x (-0.5SD) 12-mth fwd PE.
CONTINUE TO READ:
5 STI Component Stocks To Accumulate in June 2018
Kee Yan YEO CMT
DBS Vickers
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Janice CHUA
DBS Vickers
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DBS Vickers
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https://www.dbsvickers.com/
2018-06-04
