Market brushed off US-Iran tensions

Date: January 13, 2020

  • STI rose 0.5% as markets regained their poise after initial US-Iran wobble;
  • Investors said to prefer to focus on upcoming US-China Phase One agreement;
  • SGX to scrap mandatory quarterly reporting, shifts to risk-based assessment;
  • DBS thinks Wall Street will remain well-supported in 1Q;
  • Magnus Energy to get new board


Geopolitical risk – not important anymore?

The stock market has experienced many geopolitical shocks over the past 10 years, among them the Greek debt crisis about ten years ago, North Korea’s missile tests and up to Brexit. In each instance, stocks recovered after an initial wobble, leading to the market to become conditioned to the idea that geopolitical risks have become less important than in the past. One possible reason for this is the knowledge at the back of everyone’s mind that central banks everywhere stand ready to slash interest rates and indulge in monetary expansion if markets take a large-scale hit, thus leading to a certain level of complacency in markets.

So it was the case last week when stock prices climbed higher despite rising oil prices and the possibility of heightened Middle East instability after the US killed a high-ranking Iranian military commander at the start of the year. Boosted by firmness on Wall Street, the Straits Times Index rose 17.13 points or 0.5% to end Friday at 3,255.95.

Instead, investors chose to focus on the upcoming signing of a Phase One trade deal between the US and China, which is due to be done on Wednesday. However, there were some observers who wondered about how much upside could be left, given that the signing was announced a month ago.

DBS: FOMO to drive US stocks in Q1

DBS Bank in its 1Q outlook said it expects the US market to continue to attract investors driven by FOMO, which stands for Fear Of Missing Out. The bank’s chief investment officer Hou Wey Fook last Thursday told the media that given the current low interest rate environment, there is no better investment class than equities and that DBS is “overweight’’ US stocks as well as those in Asia ex-Japan.

SGX to scrap universal quarterly reporting

In local news, the main feature was news on Thursday that the Singapore Exchange (SGX) is quarterly reporting (QR) is no longer mandatory for all companies, unless the SGX has reason to believe it is necessary because of certain question marks over troubled companies.

From 7 Feb onwards, a new, risk-based approach to QR will replace the current reporting requirement based on companies meeting a certain minimum market capitalization. Under the new rules, a firm will have to undertake QR if it does not have clean audit opinions or if it facing regulatory or compliance issues. Most industry observers have welcomed the move as it will reduce compliance costs for most companies.

In addition, SGX is strengthening its mainboard listing review process. One change is that the Association of Banks’ Listing Due Diligence Guidelines will be incorporated into SGX’s Listing Rules, another is that rules governing issue manager independence will be codified.

Analysts interviewed by The Business Times said the removal of universal QR is not expected to negatively impact their research. In “Removal of Quarterly Reporting won’t hurt research: analysts’’ in BT’s January 11-12 issue, OCBC Investment Research’s head Carmen Lee said analysts generally write reports based on corporate developments or changes in a company’s operating environment, not just using QR. RHB Securities’ Jarick Seet was quoted saying there are other platforms from which to obtain company updates, other than QR. “Analysts can still provide updates from meeting with managements or through channel checks, despite the lack of quarterly results’’ he said.

Magnus Energy gets a new board

A team led by disgruntled shareholder Charles Madhavan was voted onto the board of troubled oil company Magnus Energy at an extraordinary general meeting held on Thursday last week. Mr. Madhavan, Ong Chin Yew, Anthony Kuek and Christopher B. O’Connor were appointed as directors, whilst Lee Chong Ping and Seet Chor Hoon were voted out as independent directors.

Magnus’s share price had plunged from 40 cents in October 2014 to as low as 0.1 cent. Trading was suspended on 23 Aug last year. CEO Luke Ho has resigned effective 9 Jan. One of the main complaints among shareholders was that the company regularly issued convertible notes which were then converted into shares.