Trump’s actions play central role

Date: October 12, 2020

  • The Straits Times Index fell on Friday but still managed a 36-points or 1.4% gain for the week at 2,532.96;
  • The main driver was Wall Street, where movements were driven by President Trump’s confusing stand on fiscal stimulus;
  • DBS recommended investors take stock;
  • SGX gave its take on what will drive the market in 4Q;
  • IMF latest World Economic Outlook: faster recovery if governments take the short-term pain of lockdowns

US President Trump’s Monday discharge from hospital helped push stock markets in this part of the world up on Tuesday; his surprise order on Tuesday to stop talks on a fiscal package until after next month’s Presidential election then sent markets down on Wednesday.

Then on Wednesday, signs that his administration would consider limited, targeted aid for certain areas helped stocks rebound, even if it isn’t clear whether Congress would support such a move. If this wasn’t confusing enough, Mr Trump on Thursday said he supported a broad stimulus package.

That in a nutshell summarises the action last week, during which the Straits Times Index still managed a 36-points or 1.4% gain at 2,532.96, even it did lose 10.15 points on Friday. Volume, however, has been disappointingly low, probably because of the uncertainty hanging over the US presidential elections in three weeks. On Friday for instance, only 1.07b units worth $844m was traded.

Overall, it was a topsy-turvy week driven largely by Mr Trump’s declarations – most of which were unpredictable, confusing and came as surprises to markets.

In terms of domestic drivers, there were a handful to speak of – the government announced new measures to ease financial pressures on the economy, news that Malaysia’s Employees Provident Fund has raised its stake in glove maker UG Healthcare, Wilmar provided details of what it intends to do with the money from listing its China unit on the Shenzhen exchange.

Trump’s actions drove Wall Street up and down

The US market rallied strongly on Monday on news that Trump, who had been admitted to hospital over the weekend after being infected by the COVID-19 virus, had been discharged.

However, US stock indexes turned sharply lower Tuesday afternoon after he said that he would pause talks on a fiscal stimulus and relief package until after the election. Earlier in the day, reports had said that Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi planned to meet and continue negotiating on a bill. That progress had lifted the market in recent sessions.

Trump’s surprising announcement stood in stark contrast with recommendations from Federal Reserve Chair Jerome Powell, who had said in a speech hours earlier on Tuesday that more economic stimulus was needed to sustain the recovery.

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Mr. Powell said in remarks before the National Association for Business Economics.

“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” he said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”

What then followed was a confusion sequence of events, driven by Mr Trump’s tweets and declarations. With less than a month to go before the US’s presidential elections, observers have pointed out the obvious: the stakes are high and the pressure is on for policymakers to try and hammer out a deal quickly.

DBS Group Research: Time to take stock

Local broker DBS Group Research on Tuesday advised investors to reassess their positions, recommending that they reduce exposure to winners like supermarkets and glove makers, and to focus instead on tech, logistics and yield plays.

The broker said that supermarket stocks like Sheng Siong and Dairy Farm have likely recorded their best quarter in Q2 2020 due to the stay-at-home order. Meanwhile, glove makers such as Riverstone and Top Glove could see “wide price fluctuations’’ as the market is anticipating strong earnings for FY20 and FY21, whilst positive vaccine news could spell trouble for the sector, said DBS.

Instead, investors should maintain exposure to tech stocks, one example being Venture Corp, which is benefiting from “a power shift in structural demand’’ on IT infrastructure, 5G and data centres.

YKA’s listing to enable Wilmar to expand its China business

Agrifood company Wilmar International said that the money raised from the listing of its China unit YKA which is estimated at 13.9b yuan will be used help pay for 19 investment projects in China.

 SGX’s take on 4Q drivers of local market

In its latest Market Update, SGX Research said Singapore is expected to show signs of a 3Q20 recovery in its highly services-orientated economy from 2Q20 following the lifting of circuit breaker measures and that the advance 3Q20 GDP estimates due by 14 Oct will also help set a tone for multiple business updates and outlooks expected by Singapore stocks from mid-October to mid-Nov.

“External market drivers will include the COVID-19 resurgence and potential vaccine developments, the US Presidential Election and push for further stimulus. Additional drivers will include China’s economic recovery, ongoing technology sector growth, in addition to currency volatility from political tensions & developments.’’.  

 “For the remainder of the 2020, the Banks, Real Estate and Industrial Sectors will be large determinants of the STI’s performance which will take cues from both these domestic and external drivers. Since 1985, the STI has averaged a 4% gain in the fourth quarter of the year’’ said SGX Research.

IMF: Economies will recover more quickly if they lock down – but warned against premature lifting

In its World Economic Outlook report due to be released this week, the International Monetary Fund (IMF) said if governments around the world accepted the short-term pain of lockdowns, then there is a good chance that economies will recover more swiftly.

“Despite involving short-term economic costs, lockdowns may pave the way to a faster recovery by containing the spread of the virus and reducing the need for voluntary social distancing’’ said the IMF, adding that “if lockdowns were largely responsible for economic contraction, it would be reasonable to expect a quick economic rebound when they are lifted’’.

It also warned that lifting lockdowns prematurely is unlikely to generate swift economic growth if health risks remain and said Keynesian public spending could create millions of jobs directly in the short-term, and millions more indirectly over a longer period.