Calm returns to markets after big Trump Dump, but uncertainty remains

Singapore

IT took just one day for markets to claw back losses from the previous day's rout triggered by Donald Trump's victory in the US presidential election.

But analysts cautioned that the rebound from Wednesday's kneejerk losses was not so much a sign of optimism as it was a cautious return to the status quo amid uncertainty about what the future holds.

The Straits Times Index rose 1.58 per cent, or 44.21 points, to close at 2,834.09 on Thursday, which more than erased Wednesday's 30.36-point decline.

In Hong Kong, the Hang Seng Index rose 1.89 per cent to 22,839.11, while Japan's Nikkei 225 climbed 6.72 per cent to 17,344.42, more than what it lost the day before. US equity markets also rose overnight, with the S&P 500 gaining 1.11 per cent to 2,163.26 while the Dow Jones Industrial Average added 1.4 per cent to reach 18,589.69.

"Yesterday it entered the oversold zone," CMC Markets analyst Margaret Yang said. "Today's rebound really took the lead from US markets."

The US dollar strengthened against the Japanese yen, with one greenback getting 106.18 yen on the spot markets on Thursday after falling to 103.93 yen on Wednesday.

"It's a bit surprising," said Stephen Innes, a senior trader at Oanda. "I woke up today to see dollar-yen at 105.50."

Thursday's rollback of Wednesday's moves was seen as a correction of overselling more than a vote of confidence about a Trump presidency.

Mr Innes described the situation as "we're not out of the woods yet, but we're not as deep in the woods as we thought we'd be."

Giving cause for optimism is hope that Mr Trump and a Republican Congress will grease the wheels for increased fiscal spending, "which will be positive for the economy, positive for the stock markets and positive for the US dollar," Mr Innes said.

However the mixed volatility outlook is keeping outright optimism at bay.

On the one hand, Thursday's recovery has revived expectations that the US Federal Reserve will raise interest rates in December, Mr Innes said. On the other, the reaction of the other major central banks around the world remains to be seen.

While Asia retains its status as a centre of growth, which will protect capital flows amid the uncertainty, the Singdollar, however, could weaken in sympathy with the renminbi.

"The Singapore dollar is tied to the hip with how the Chinese yuan goes," he said. "My feeling is that the yuan could possibly continue to devalue given the drop in exports... I think a weaker regional currency from an economic policy perspective is not unwelcome."

Singapore equity analysts are recommending caution as the world awaits "Trumponomics".

OCBC head of research Carmen Lee recommended sticking to a defensive portfolio of safe-haven and yield-paying stocks, but looking for tactical opportunities.

Mergers and acquisitions, for example, are worth watching for with Singapore stocks trading at cheap multiples.

"Having this whole election overhang out of the way should be positive," Ms Lee said. "For a long time it was hard to persuade clients to take long-term positions. But removing that overhang to me is positive. Now we can get back to business."

UOB Kay Hian head of research Andrew Chow said the Singapore market favours stock picking over sector-based allocations, and advised looking for "resilient earnings or yields", staying defensive in big caps and targeting growth stories among small caps.

"It's less to do with the US but more to do with the growth environment here, structural changes and disruptive technologies," Mr Chow said. "If you can find companies that can adopt new technologies, it's worth a closer look."

CIMB analysts highlighted Singapore Exchange as a unique beneficiary of heightened market volatility, although the "key question is the sustainability" of the headlines that drive that volatility.

Telcos, regional consumer players and transport also offer some insulation against US policies given their domestic and regional bias.

READ MORE: