What happened to Singapore equities amidst fears of early QE3 cut back

Were they badly hit?

According to DBS, given the recent volatility in global bond markets and the negative spill over into equity and currency markets, investors will be closely monitoring the FED’s guidance and intentions on asset purchases from the outcome of this week’s FOMC meeting. 

DBS Economics Research sees reasons for the FED to sit tight rather than taper asset purchases. US GDP growth in the next 2 quarters is expected to read 1.4%, not much better than the previous two and less than half the long-term average as the impact of the US85bil sequester cut is felt from April-Sept. 

Here's more from DBS:

While the recent headline improvement in US unemployment rate led investors to set a straight line projection for the jobless rate to fall to 6.5%, which is one of the triggers for the FED to exit QE3 and raise interest rates, we believe things are never that simple. 

Our economist notes that recent manufacturing data has weakened again with the May PMI falling to 49, the lowest since June 2009.

The employment rate sub-indices for both the ISM manufacturing and services have also dipped. If these weaknesses persist, the pace of improvement of the unemployment rate can moderate or even reverse. 

Singapore equities were sold down in recent weeks in anticipation of an early QE3 cut back, but the sell-down appears to have reached a short-term support last week. 

Consensus expectations are for the FED to reduce the monthly bond purchases to USD65bil from the current US85bil by September and start raising interest rates by Mar15.

Any less from the FED this week can trigger a further rebound in equity prices.