Geopolitics, M'sian GE in focus amid trade war risks

THERE are many political events this week that could inject more volatility into the stock markets.

"Geopolitics will likely be the dominant focus for the markets as we are fast approaching the May 12 deadline for waiving sanctions on Iran based on the 2015 Joint Comprehensive Plan of Action (JCPOA)," UOB economists said.

US President Donald Trump has indicated that he was ready to withdraw from the deal. If Mr Trump decides to ask Congress to re-impose sanctions on Iran, then the crude oil markets will be the first to react with a sharp jump in prices.

Headlines from the Sino-US trade policy developments and the Nafta re-negotiations, which has been on-going for eight months, could also rattle market sentiment. US Trade Representative Robert Lighthizer is scheduled to meet his Mexican and Canadian counterparts on May 7 after he returns from a trip to China.

The political career of UK Prime Minister Theresa May is also a potential market-moving factor as she seeks to strike a "compromise" with her "war Cabinet" over Britain's future customs relationship with the European Union, Maybank economists said.

In Singapore, there could be a shift in focus to Malaysia's 14th General Election on May 9, as many Malaysians residing in the city-state make their way home to cast their votes.

"... an upset result will have a catastrophic impact on the market. That being said, the likelihood is slim and the clearance of the event would have the Malaysian KLCI returning to trade according to fundamentals, one to watch," Jingyi Pan, market strategist at IG said.

Economic data scheduled for release in Singapore include a very dated March retail sales on May 11, and the Certificate of Entitlement auction on May 9.

Some analysts warned that the Straits Times Index (STI), which ended at 3,545.38 on Friday, is showing signs of fatigue, as it struggled to farm significant gains last week. They suggested it might be time for profit taking ahead of the important geopolitical events.

On Wall Street last Friday, a weaker-than-expected US wage growth helped to calm global investor fears about rising interest rates and inflation. The Dow Jones Industrial Average rose 332.36 points, or 1.39 per cent, to end at 24,262.51, some 48.68 points, or 0.2 per cent, off from the previous week's close.

Interestingly, as global markets swing wildly in tandem with trade war threats, independent global advisory firm Oxford Economics said that risks from a Trump trade war are overstated. Comprehensive review of historical trade conflicts confirms that their effects tend to be contained.

"Overall, historical evidence is consistent with our guarded optimism about the macro-economic and market effects of current trade tensions."

"... exaggerated market moves as trade tensions escalated over recent weeks suggest that investors may be attaching excessive weight to the probability of a full-blown trade war."

Oxford Economics had examined financial market movements around the time of 29 significant trade war events since 2016 to come to its conclusion.

For yield seekers, Legg Mason Global Asset Management said that Asia-Pacific equities remained competitive when compared to their developed market counterparts.

"A strong economic environment, firm financial footing and a strong focus on prudent governance can underpin the quality and growth of dividends in Asia-Pacific," it said. For instance, Singapore's index is dominated by high dividend financials and real estate investment trusts worth looking at.

For full listings of SGX prices, go to http://btd.sg/BTmkts