The STI has been sliding from its recent high at 3,348 following the military tension between the US and North Korea.

As we head into September, DBS Research opines that military tension could heighten and unsettle markets.

With central banks convening meetings and German elections held in September, September is set to be an eventful month for investors.

Fed unwinding balance sheet to be announced in September?

According to the latest minutes from the Federal Open Market Committee (FOMC), it is split on the path of rate hikes in the upcoming quarters.

The dovish members are worried that raising interest rates in a low-inflation environment could jeopardise the US economy.

The hawkish members, on the other hand, is concerned whether a delay in raising interest rates could lead to further risks to the economy, given that full employment has already been reached.

Given the current circumstance, DBS Research’s economist believes that the Fed might only raise interest rates once in December.


Another area of concern for investors is whether the Fed will announce the unwinding of balance sheets in the upcoming FOMC meeting in September.

According to DBS Research Chief Economist, the Fed could announce the decision to unwind its balance sheet at the September FOMC meeting. The unwinding will then be implemented in November or December this year.

However, most studies show that the impact of unwinding could be limited, given that “90% of the US$3.6 billion of QE money went straight into the FED’s “basement” in the form of excess reserves held by banks instead of being ‘injected’ into the economy”.

Three events that could rattle markets in September

DBS Research opines that September could be an eventful month for the markets, given the events that are taking place in the month of September.

Based on the economic calendar, three important central bank meetings are set to convene in the month of September.

The confluence of central banks’ policy meetings (FED, ECB and BOJ) will be on the topic of balance sheet reduction (US), extending or winding down of asset purchase (ECB) and possible stimulus exit (BOJ).

The German election will take place in the month of September as well. Should Angela Merkel emerge victorious, DBS Research believes that the markets could experience a ‘relief’ rally similar to those in other European elections earlier in the year.

The other event that could make a major impact on markets is the rising geopolitical tensions in the Korean peninsula.

DBS Research believes that any further incidents that lead to a worsening situation could encourage investors to pare down the exposure on equities and seek safe haven assets.

VIX unexpectedly low

DBS Research has been closely monitoring the Volatility Index (VIX) and thinks that the recent VIX level might be too low for comfort. The VIX recently fell to a low of 9, which is unprecedented since 2014.

Although such low levels in the VIX have been a prelude to an up-spike in market volatility, DBS Research feels that it seems too surreal to lead to a breakout considering the events that could rattle markets in September.

With rising geopolitical risks and the uncertainty build-up heading towards the three major central banks’ meetings in September, investors seem to be unprepared for an adverse market reaction.

So how should investors invest their money in a possibly eventful month in September?

Riding on improving property sentiments

DBS Research believes that residential property stocks should continue their rising trend given the improving sector sentiment.

The robust demand at new launches (think Hundred Palms EC), and the string of en-bloc sales year-to-date, continue to bode well for the residential segment.

Stock Picks: City Dev, UOL

Interest in rig builders to build up


DBS Research believes that investor interest should expand from banks, properties and technologies to other sectors such as the industrials and capital goods as the economic recovery progress from early towards mid-expansion.

DBS Research thinks that the interest in rig builders should see some potential upside as it rides on the improving demand-supply situation for oil.

Stock Picks: SembCorp Industries, SembCorp Marine, Keppel Corp

REIT value plays

Among large cap S-REITs, DBS Research’s preferred pick is Mapletree Greater China Commercial Trust given its attractive valuation and highest yield (6.7% prospective yield) among large cap S-REITs.

Another REIT value play that DBS Research recommends is Keppel REIT, which is trading below its book value at 0.8x.