
Should investors sell in May and go away?
Markets may be headed for a downturn.
May is traditionally considered an inauspicious time to invest. In the last six years since the Global Financial Crisis, the MSCI emerging market index has registered five straight years of negative monthly returns in the month.
Analysts caution that it will make sense for investors to follow this old adage this year, but shouldn’t be so rash as to sell all their holdings in local stocks.
“We recommend investors to take profit selected blue chips,” DBS Vickers said in a report. In particular, DBS noted that the recent negative turn of events for rigbuilders will cause a share price overhang on these stocks.
CMC Markets analyst Margaret Yang cautioned that more market participants may try sell their shares this month to avoid the expected downturn in markets.
"It could become a notable selling force. This is especially worrisome as we’ve just experienced two months of rebounds in commodities and equities since mid-Feb. For the long-term investors however, short term volatility may not affect their positions if the fundamentals remain intact," she said.
Increasing forex volatility will also be a dominant theme this month, a result of diverging central bank policies across the globe.
“The Straits Times Index (STI) now trades at slightly above the 12.09 times (-1 standard deviation) financial year 2016/17 price-to-earnings (P/E) level of 2,900. Further upside for the STI beyond 2,965 is hard to justify unless the US dollar/Singapore dollar continues its decline. Furthermore, stock prices could pullback, with many stocks going ex-dividend soon. Upside looks limited, another pullback looks due. We peg a range of 2,800 to 2,965 till end-May, with support along the way at around 2,860,” DBS noted.