How investments are reacting to 'surprising' US events

How investments are reacting to 'surprising' US events
PHOTO: AFP

Many people were expecting the US Federal Reserve to raise interest rates this month.

But what caught them and stock markets around the world by surprise was the Fed saying it would likely raise the interest rates another three times next year.

Considering that the Fed had raised them twice since 2006, the announcement was indeed a surprise.

But surprises seem to be the new norm.

Tycoon Donald Trump's stunning win in the US presidential election last month initially drew jitters of a possible stock market crash.

Instead, his conciliatory victory speech, which sparked expectations of him increasing fiscal spending to spur economic growth, was the catalyst for a global stock market rally.

The Straits Times Index (STI) has gained around 4 per cent since the election on Nov 8.

In light of these two "surprising" events, here are how three common investment products have reacted so far.

EXCHANGE-TRADED FUND (ETF)

ETFs are investment funds listed and traded intraday on a stock exchange that provides exposure to international markets and asset classes that may be inaccessible to individual investors.

Most Asian equity markets slumped after the Fed's announcement, the Singapore Exchange (SGX) noted in a market update last week.

India was particularly badly hit - foreign investors have been trimming their holdings of Indian stocks since Prime Minister Narendra Modi's move last month to demonetise the country's high-denomination currency notes - 500 and 1,000 rupees.

Donald Trump wins US presidency in stunning upset

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    Donald Trump has stunned America and the world, riding a wave of populist resentment to defeat Hillary Clinton in the race to become the 45th president of the United States.

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    The Republican mogul defeated his Democratic rival, plunging global markets into turmoil and casting the long-standing global political order, which hinges on Washington's leadership, into doubt.

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    "Now it is time for America to bind the wounds of division," Trump told a crowd of jubilant supporters in the early hours of Wednesday in New York.

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    "I pledge to every citizen of our land that I will be president for all Americans." During a bitter two-year campaign that tugged at America's democratic fabric, the bombastic tycoon pledged to deport illegal immigrants, ban Muslims from the country and tear up free trade deals.

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    His message appears to have been embraced by much of America's white majority, disgruntled by the breath and scope of social change and economic change in the last eight years under their first black president, Barack Obama.

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    Trump openly courted Russian leader Vladimir Putin, called US support for NATO allies in Europe into question and suggested that South Korea and Japan should develop their own nuclear weapons.

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    The businessman turned TV star turned-politico - who has never before held elected office - will become commander-in-chief of the world's sole true superpower on January 20.

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    The results prompted a global market sell-off, with stocks plunging across Asia and Europe and billions being wiped off the value of investments.

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    Although he has no government experience and in recent years has spent as much time running beauty pageants and starring in reality television as he had building his property empire, Trump at 70 will be the oldest man to ever become president.

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    Yet, during his improbable rise, Trump has constantly proved the pundits and received political wisdom wrong.

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    Opposed by the entire senior hierarchy of his own Republican Party, he trounced more than a dozen better-funded and more experienced rivals in the party primary.

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    During the race, he was forced to ride out allegations of sexual assault and was embarrassed but apparently not shamed to have been caught on tape boasting about groping women.

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    And, unique in modern US political history, he refused to release his tax returns.

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    But the biggest upset came on Tuesday, as he swept to victory through a series of hard-fought wins in battleground states from Florida to Ohio.

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    Clinton had been widely assumed to be on course to enter the history books as the first woman to become president in America's 240-year existence.

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    Americans have repudiated her call for unity amid the United States' wide cultural and racial diversity, opting instead for a leader who insisted the country is broken and that "I alone can fix it."

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    If early results hold out, Trump's party will have full control of Congress and he will be able to appoint a ninth Supreme Court justice to a vacant seat on the bench, deciding the balance of the body.

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    So great was the shock that Clinton did not come out to her supporters' poll-watching party to concede defeat, but instead called Trump and sent her campaign chairman to insist in vain the result was too close to call.

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    "I want every person in this hall to know, and I want every person across the country who supported Hillary to know that your voices and your enthusiasm mean so much to her and to him and to all of us. We are so proud of you. And we are so proud of her," chairman John Podesta told shell-shocked supporters.

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    "She's done an amazing job, and she is not done yet," he insisted.

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    Musician Lagy Gaga stages a protest against Republican presidential nominee Donald Trump on a sanitation truck outside Trump Tower in New York City after midnight on election day November 9, 2016.

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    A street performer dressed as the Statue of Liberty hold photos of U.S. presidential candidates Donald Trump and Hillary Clinton at the financial Central district in Hong Kong, China November 9, 2016, after Trump won the presidency.

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    A "Naked Cowboy" performer supporting Donald Trump walks through Times Square in New York, November 9, 2016.

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    People react as they watch news on a screen to follow the results of the final day of the US presidential election at an event organised by the American consulate in Shanghai on November 9, 2016.

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    Protesters against president-elect Donald Trump march peacefully through Oakland, California.

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    A separate group earlier in the night set fire to garbage bins and smashed multiple windows.

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    Police officers chase a group of about 50 protesters.

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    University of California, Davis students protest on campus in Davis, California.

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    An invitee places a cookie depicting U.S. Democratic presidential nominee Hillary Clinton on a table at the US presidential election results watch party at the residence of US Ambassador to Japan, Caroline Kennedy, in Tokyo.

Gold prices, which tend to move inversely against the US dollar, were also affected by the greenback's recent strength. They are heading for a sixth weekly decline and hovering at a 10-month low.

As a result, some of the most active ETFs on SGX in the December month-to-date were iShares MSCI India Index ETF and SPDR Gold Shares ETF.

US ETFs were previously in the spotlight in anticipation of the Fed's interest rates hikes, according to an SGX report on Dec 10.

Earlier this month, the db x-trackers S&P 500 Inverse Daily UCITS ETF was the most active, registering a 33-fold surge in turnover from the year-ago period.

REAL ESTATE INVESTMENT TRUST (REIT)

In theory, Singapore Reits are sensitive - like any other real estate investments - to rising interest rates as they leverage on debt to generate rental income.

The sector is also facing headwind as the Singapore economy is not doing well, and there is an oversupply in commercial office and industrial property, explained financial blogger and investment coach Kenny Loh, who specialises in Reits.

Due to mounting expectations of an interest rate hike, the SGX S-REIT Index has corrected by 5 per cent since its year-to-date peak in early September, SGX said in a market update last week.

After the Fed's announcement, the sector did not see any knee-jerk reaction because the expectation had already been priced in, said Mr Loh.

He pointed out that not all sectors and Reits are facing challenges because some portfolios in the healthcare or industrial sectors are more defensive in nature.

OCBC analyst Deborah Ong recommended hospitality Reits because the current price levels are looking attractive for some of the Reits under coverage.

on SPH Brightcove

Her picks included Ascott Residence Trust and CDL Hospitality Trusts.

"In particular, OUE Hospitality Trust looks attractive to us, with anchor tenants Michael Kors and Victoria's Secret finally open at Mandarin Gallery, and the potential for increased contributions from Crowne Plaza Changi Airport following the opening of Terminal 4 in the second half of 2017," she said.

Mr Loh urged retail investors to understand their investment objective and do a risk profile first before deciding which Reit to invest in.

"Without understanding themselves, retail investors tend to be emotionally influenced by news and market volatility, and thus panic sell at the wrong time, which results in losing money in Reits."

FOREIGN EXCHANGE

Three currencies - the Malaysian ringgit, South Korean won and Singapore dollar - have led the decline against the US dollar when compared with levels prior to Mr Trump's victory, noted a report by IG Markets this week.

The Fed's rate signal triggered a renewed rise in US bond yields, boosting the dollar and stoking worries about the risk of capital outflows from emerging markets in Asia, reported Reuters on Monday.

The ringgit fell to its weakest level since the 1998 financial crisis, while the South Korean won hit a nearly six-month low on Monday.

The Singapore dollar sank to a near one-year low against the US dollar last week - right after the Fed raised interest rates.

Yesterday, it tumbled to its weakest in seven years - at about 5pm, the greenback was fetching 1.4444 Singapore dollars.

linheng@sph.com.sg


This article was first published on December 22, 2016.
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