ANALYSIS: S’pore election results will impact the market
SINGAPORE, May 06, 2011 (The Straits Times – McClatchy-Tribune Information Services via COMTEX) –
Five years ago, Singapore’s then sizzling stock market hit a record high on the first trading day after the ruling People’s Action Party (PAP) achieved a resounding election victory.
Despite a subsequent regionwide market sell-off later that month — May 2006 — which took some shine off the exuberance, there was no looking back.
In the intervening five years, the benchmark Straits Times Index (STI) has gained 21.5 per cent, even though midway, Singapore suffered its worst economic downturn since independence amid a global financial crisis triggered by a souring United States mortgage market.
Investing in other markets has not been as rewarding. For instance, an investor who put his money in US stocks over the same period would be sitting on a modest 10 per cent gain.
Recently, foreign investors have been looking to invest in the region again. In the past five weeks, data from Citi Investment Research shows that foreign investors pumped a staggering US$13.8 billion into emerging markets such as China, South Korea and Hong Kong.
So far though, they have opted to skip Singapore. This is in contrast to late 2006 — just months after the last general election — when Singapore was their first port of call in Asia, as they pumped US$1 billion into the stock market here each week.
Market watchers say their cautious stance is partly due to the election fever sweeping across the island.
The 2011 General Election is different from the one in 2006 because there is more uncertainty this time. As Nomura Equity Research noted last week, the “times they are a-changin”.
For starters, the opposition will be contesting 82 of the 87 seats up for grabs — the largest number contested since independence. A record 2.21 million eligible voters will be going to the polls, many of whom will be casting a vote for the first time in their lives.
Markets dislike this type of uncertainty. Wall Street greeted US President Barack Obama with a 4 per cent plunge when he took office more than two years ago, simply because it was uncertain of the effectiveness of his economic policies (although he later won some kudos for starting to get the troubled US economy back on its feet).
Therefore, investors prefer to wait and see the results of May 7 before they funnel more funds here. Ms Tan Min Lan, a strategist at Swiss investment bank UBS, warns that the risks to the market could be high if opposition parties here make significant inroads on Saturday.
“In 1991, the PAP suffered an unexpected setback, losing four of the contested 81 seats. A month later, the market fell 4.6 per cent and underperformed the region,” she said in a report last week.
In contrast, when the PAP achieved a 10 percentage-point rise in the popular vote to 75 per cent in the 2001 General Election, the market outperformed the region and rose 19.8 per cent a month after the polling date.
“If the two opposition incumbents lose their seats and the PAP ends with a clean sweep, or a strong mandate, stocks in sectors such as residential properties could rally,” said Ms Tan.
But analysts are broadly confident that the PAP will carry the day, given its strong track record, grassroots network and the advantage of incumbency.
“From the stock market’s perspective, the market is expecting the ruling PAP to maintain its dominance in Parliament,” said Nomura in a report last week.
But it was worried however that if the PAP achieves a significantly reduced popular vote, it may review some of its policies which has affected its popularity like foreign workers, property prices and the integrated resorts.
And it warned that any tweaking it may make in the policies affecting these areas may have negative implications on the stock market.
To many voters, rising costs of living and escalating housing prices are the hot-button issues. To investors, however, issues such as economic growth and the openness of the country to foreign capital and talent that matter may be the prime concerns.
United Overseas Bank chairman Wee Cho Yaw summed up the collective sentiment of investors — both foreign and local — when he said: ‘To me, what is important is that we have a stable government that is proactive to business. This is what has made Singapore what it is today.’
Meanwhile, Singapore itself will be in a state of uncertainty as it awaits the election results.
The ruling PAP has said that how the vote goes could affect Singaporeans’ property values, their neighbourhood, their country and their future.
There’s also one other thing it could affect — the decisions of foreign investors, who are now keenly watching the election from the sidelines.
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