World Cup may not bring much cheer to stock market, but is friendlier to currencies

Singapore

FOOTBALL fever may cause stock market trading to cool as the World Cup kicks off, with late nights keeping investors on the sidelines.

The silver lining is that after the tumble in May, there seems to be "rather limited" downside for the Singapore stock market, a report flagged.

According to a DBS Group Research report, the Straits Times Index (STI) fell by an average of 8.6 per cent in the two months between end-April and end-June during the past six World Cup tournaments. The last time the World Cup was held in 2014, SGX's trading value dropped by 29 per cent in the two weeks after the soccer tournament began.

DBS economists Taimur Baig and Ma Tieying wrote: "STI's decline in May this year is thus in line with our expectation that the two-month period from May-June should be net negative with subdued trading activity. We expect trading activity to quieten further this month as World Cup tournament starts, and amid June school holidays, attention gets diverted away from the stock market."

CGS-CIMB remisier Ernest Lim expects the Singapore market will also remain quiet for the next couple of weeks given the lack of near-term catalysts since most companies have either reported their results.

Investors are also likely to be cautious as they await trade developments between the United States and other countries and regions such as China and the European Union, he added.

Still, the second half of the year is expected to be better for the Singapore stock market, the DBS report found.

The DBS economists added: "Our 2018 year-end target of 3,850 for the STI represents 11 per cent upside. Its strong external position should stand out among the neighbouring countries as rising rates and a strong US dollar are likely to continue to put markets on the defensive."

Meanwhile, the World Cup tends to be friendlier to currencies during the tournament, although this may not carry through to the rest of the year, DBS economists noted.

Both the euro and British pound have appreciated in the last four World Cups, while North-east and South-east Asian currencies have also typically done well over the last three World Cups. The Singapore dollar and Thai baht were the only Asian currencies which have strengthened during every World Cup since 1986.

But to avoid an "own goal", they advised against commodity-led currencies which are volatile, such as the Australian and Canadian dollars.

DBS economists also raised the possibility of a rally after the World Cup champions are crowned, given that for the last five World Cups, the total returns for the Bloomberg Emerging Markets Asia index have averaged 2.2 per cent higher six months after the event vis-a-vis the six months before.