STI brushes historic 5,000 but risks 4,300 plunge amidst US-Iran tensions

Investor sentiment is dominated by the Middle East tensions.

The Straits Times Index touched the psychologically significant 5,000 level twice in April before retreating, but an analyst warned that a full breakdown in US-Iran talks could drag the index as low as 4,300.

STI hit an intramonth high of 5,021.20 before retreating to close at 4,912.69, up 0.6% mom, as geopolitical volatility tempered bullish momentum, UOB Kay Hian said in a report.

Investor sentiment was dominated by the Middle East tensions. Disruptions to the Strait of Hormuz raised concerns over supply shocks and inflation, with LNG prices a key concern for energy import dependent countries like Singapore.

Despite geopolitical uncertainty, Wall Street reached fresh highs supported by strong big tech earnings, while the US Federal Reserve kept rates unchanged amid a more divided policy outlook. Domestically, the Monetary Authority of Singapore (MAS) tightened policy by slightly increasing the pace of S$NEER appreciation to curb imported inflation, signalling a shift toward a less accommodative stance.

Singapore’s manufacturing PMI rose to 50.7 in April from 50.5 in March, marking an eighth straight month of expansion and the strongest reading since Feb 25.

UOB Kay Hian said the gain was driven by stronger growth in new orders and output, and continued expansion in exports and employment. However, supply-side constraints persisted, with longer delivery lead times and ongoing cost pressures due to heightened geopolitical uncertainty.

In a separate report, DBS said that it sees three scenarios for the STI, with the worst case being the index falling below the 200-day EMA to 4,450 or even 4,300 if “talks break down completely, ceasefire is revoked, US naval blockade tightens, crisis becomes a regional conflict.”

Best case scenario, DBS said, sees a temporary fall below 4,700 towards 4,600 before recovering back into the 4,700 to 5,040 range.

“STI has stayed rangebound with near-term support at 4,700 to 4,760 and resistance at 5,000 to 5,040, as investors monitor the unfolding Iran war. This is in line with our expectations. We maintain our STI YE target of 5,250, premised that oil flows gradually resume through the Strait of Hormuz from May/ June,” DBS said.