US-North Korean tensions rock markets; STI slips 1.4% for week
TENSIONS surrounding North Korea's planned missile tests and the potentially harsh US retaliation that might ensue brought the sellers out on Friday and sent the Straits Times Index down 43.52 points or 1.3 per cent to 3,279.72.
For the week, the index lost 47 points or 1.4 per cent. Turnover in recent days has increased - on Thursday, a hefty S$1.8 billion was done, falling back on Friday to a still-decent 2.7 billion units worth S$1.5 billion.
On Thursday, North Korean war rhetoric triggered a large correction on Wall Street, its largest since the technology selloff of May 17. This came after US President Donald Trump told reporters that his Wednesday "fire and fury" warning to North Korea might not have been tough enough.
He said that North Korea "can be very, very nervous" if it acts on either the US or its allies, a reference to Pyongyang's earlier response that it would send missiles to the US territory of Guam. Mr Trump also warned that "things will happen to them like they never thought possible".
Rob Carnell, head of Asia Research at ING Asia Pacific, said the situation was "beginning to develop into this generation's Cuban Missile crisis moment, with recent leaked intelligence reports alleging that N Korea now has miniaturised its nuclear warheads, which extends the range of its missiles, and potentially brings US targets into reach".
It was the banks that propped up the STI on Thursday when the broad market was weak, and so it was that banks led the index lower on Friday. DBS, which traded ex-dividend on Friday, led the way with a S$0.46 or 2.2 per cent fall to S$20.80 on a volume of 5.5 million. It is paying a dividend of S$0.33.
Among the other index stocks that have been in the news lately is Yangzijiang Shipbuilding, thanks mainly to expectations of superior earnings. On Friday, the counter's stunning runup was curbed when it dropped S$0.065 to S$1.53 with 40 million traded.
One former index component that has also been in the news is Noble Group, which on Thursday announced a second-quarter loss of US$1.75 billion including a one-off charge of US$1.2 billion. On Friday, Noble's shares jumped S$0.065 or 18.6 per cent to S$0.415 on turnover of 45 million.
Among other news was that the government has raised its full-year GDP growth forecast to 2.5 per cent. Maybank Kim Eng said that it is maintaining its full-year GDP forecast at +3 per cent in 2017 and +2.4 per cent in 2018. "Growth is broadening to services, which will help offset the moderation in manufacturing growth in the second half," said the broker. "MTI (Ministry of Trade and Industry) was more positive, highlighting that the potential downside risks have eased."
Goldman Sachs Asset Management (GSAM), in its Global Fixed Income weekly update, said that it has increased exposure to the US dollar versus other developed market (DM) currencies and reduced exposure to emerging market (EM) currencies. "Based on cyclical factors, such as interest rate and terms of trade differentials, the US dollar appears undervalued versus other DM currencies, and is also beginning to look cheap based on long-term valuation metrics versus certain currencies, including the Australian and New Zealand dollars," said GSAM.
