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Analysts see no U-turns on economic policies post-GE; market subdued

Market's attention is focused on outcome of US Fed policy meeting on Sept 16-17

PAP supporters celebrating the results of the general election on Friday. The ruling party is likely to continue with more "social-oriented" policies, say economists.


THE ruling party's surprisingly strong showing in this year's general election (GE) could briefly lift local shares this week but any boost will probably be short-lived, analysts say, noting that external factors such as a looming US interest rate hike continue to weigh down the market.

When the market opened on Monday, the benchmark Straits Times Index appeared largely unmoved. It started out marginally lower at 2,885.85 points - 0.09 per cent down from Thursday's close, continued to languish for the rest of the day, before finishing 0.6 per cent lower at 2,871.47 points.

The analysts added that the unexpected landslide victory for the People's Action Party (PAP) suggests that it has found an optimal balance for economic policies over the past four years and will likely stick to that winning formula, especially when it comes to domestic restructuring.

Brokerage research houses said in their Monday morning notes that the PAP's 69.9 per cent vote share in GE 2015 could give the downbeat Straits Times Index (STI) a small shot in the arm, although they cautioned that this optimism could fade before the end of the week.

"Given the bolstered confidence in the PAP and in Singapore's future among investors, we believe that the market would react positively to this on first take on Monday, but taper off subsequently with global rate hike concerns," RHB said, flagging the US Federal Reserve policy meeting on Sept 16-17.

It said several "Singapore Inc" companies could do well, naming banks such as DBS and OCBC, telcos as well as infrastructure-related stocks such as Keppel Corp and Sembcorp Industries.

UOB Kay Hian also said that the GE outcome would be "mildly market positive", but cautioned that it had found "no discernible patterns" in the stockmarket's performance after previous GEs. The key drivers for local shares tend to be external factors and corporate earnings growth, it noted, adding: "Sectors that could see longer-term impact from potential tweaks in government policies include property and land transport."

DBS Group Research also said that any "positive reaction" would probably not last long because the market's attention was now on the outcome of the Fed meeting. "We maintain our STI range from 2,750 to 3,050 . . . The local equity market lacks positive catalysts amid rising risks of a technical recession in Q3 and ongoing macro uncertainties."

Economists expect the ruling party to stick to its economic policy trajectory of the past four years, without any overt shift to populism. Although the strong mandate handed to the PAP last Friday could give it more room for flexibility in modifying existing measures based on incoming data, the party is unlikely to reverse policies, they said.

"I don't think the government, having regained the trust of voters, is about to U-turn . . . they won't shoot themselves in the foot," CIMB Private Bank economist Song Seng Wun told The Business Times. "The coming Budget may again see relatively 'left-leaning' proposals to continue to win hearts and minds."

UOB economist Francis Tan also told BT that the ruling party was likely to continue with more "social-oriented" policies, though he added that this should not be taken to imply that it was giving up on helping companies. Concerns about hikes in the Goods and Services Tax (GST) and more foreign labour curbs are also probably misplaced, he said, adding: "They will be looking to grow the pie rather than to change the share of the pie."

DBS said in a separate note that perhaps the only "contentious issue" left unresolved for the local population is the reliability of the public transport system. "A review of the existing privatised business model may be warranted in this regard."

Fiscal policies aside, economists were divided on whether the GE outcome could point to Sing dollar easing by the Monetary Authority of Singapore, with a month to go before the central bank's October meeting.

Citi economist Kit Wei Zheng noted that an increase in the PAP's vote share has been correlated in the past with Sing dollar easing, since the party has historically fared better when the economy is weak.

"We would not rule out that better sentiment following the election results together with elevated risks from the global event calendar could trigger a position adjustment that could drive Sing dollar strength in the short run. However, given the strong US dollar backdrop and investors likely to conclude that the election results will slightly increase the odds of MAS easing in October on reduced political constraints, a strong SGD NEER (nominal effective exchange rate) trend should not be sustained."

However, Barclays economists said in a note that they expect the central bank to maintain its Sing dollar policy, saying that economic growth and inflation "have fallen by more than expected this year, but not by enough to trigger further easing".