By JAMIE LEE
(SINGAPORE) Sell first and ask questions later - that's how foreign investors may react to a freak election result, noted a brief report by AmFraser Securities this week.
The brokerage expects the benchmark index to slump by as much as 15 per cent, or to about 2,750 points, if the People's Action Party (PAP) loses two-thirds majority. The report did not cite any historical benchmarks to back up the anticipated selldown under this circumstance.
'The market reaction could be very bearish as foreign investors likely to sell first to reassess the situation,' wrote AmFraser analyst Najeeb Jarhom, calling the freak results 'unthinkable'.
The Straits Times Index (STI) may also take a 'long time' to recover, he added.
If the share of votes held by the ruling party falls to 55 per cent, or if there is a loss of more than three GRCs, the market could still react negatively in the short term, said Mr Jarhom.
This could translate to a 150-point loss to about 3,000 points, though the recovery should be faster in this case.
But there may be no impact if a GRC is awarded to the Opposition even if that means a loss of two to three ministers, as long as heavyweight ministers retain their seats, he added.
An earlier BT analysis showed that over the past two decades, the results from Singapore's general elections have had little immediate impact on the market.
There is, however, a correlation between the benchmark index's performance a month after the elections, based on the results from the 2001 and 2006 elections, Bank of America Merrill Lynch has noted.
In the GE of 2006, when PAP's share of votes fell 14.2 per cent to 66.6 per cent, the STI fell 10 per cent in the subsequent month. And when the PAP swept 75 per cent of valid votes in 2001, the STI surged 20 per cent in the month after.
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