Amidst worry of trade and currency wars, defense is best

Date: July 23, 2018

  • STI rose 1.1% despite worry of trade and currency wars;
  • Trump accused China, EU of currency manipulation, questioned Fed policy;
  • SGX provided more details of Fast Track program;
  • Offer launched to take Wheelock Properties private;
  • SIAS held dialogue with Shanghai Turbo shareholders, townhall for Hyflux;
  • IMF warned of growing complacency;
  • Brokers recommended going defensive


The Straits Times Index rose 37 points or 1.1% over the course of the five days to end the week at 3,297.83. Average volume traded per day was just under S$1 billion – not particularly encouraging for a market where S$1b is seen as the approximate breakeven level for the broking industry.

Still the index was well supported, mainly because of a firm Wall Street, which appeared to adopt a “no news is good news” viewpoint as far as the US-China trade war is concerned – the absence of fresh developments on this front saw the Dow Jones Industrial Average rise for five consecutive sessions until it was hit by selling on Thursday.

However, even when US President Donald Trump on Friday took to Twitter to accuse China and the European Union of manipulating their currencies and interest rates, US stocks closed only marginally weaker. Earlier in the week, he said he was not happy that the US Federal Reserve is raising interest rates.

Still, Bloomberg quoted Jens Nordvig, a top-ranked currency strategist as saying the real risk is that there will be a broad-based unravelling of global trade and currency cooperation. “Trump’s rhetoric over the last 24 hours is certainly shifting this from a trade war to a currency war’’ said Mr Nordvig.


SGX’s Fast Track

The Singapore Exchange (SGX) on Monday provided details of its Fast Track program that seeks to reward well-governed companies with faster clearance of routine corporate matters. SGX’s chief regulatory office Tan Boon Gin said the exchange does not take a “one size fits all” approach to regulation; instead, it adopts a “tiered” approach.

Tier 3 companies are the most notorious, comprising firms where fraud or some form of criminal behavior has occurred. Tier 2 comprise companies where fraud may not have taken place but are those which “are somewhat cavalier” in their approach to complying with the rules. Tier 1 in the meantime, would include companies that are law-abiding or rule-compliant.

SGX currently has 60 names on its Fast Track list, and SGX said it has no quota for this list, adding that it hopes more names can be added in the future.

Shanghai Turbo

On Wednesday, SIAS hosted a dialogue with shareholders of Shanghai Turbo after which it called on all minority shareholders to vote against a proposed resolution to remove the incumbent board of directors at an upcoming extraordinary general meeting (EGM) on July 24. SIAS president David Gerald said there appeared to be no legitimate reason for two new shareholders, Lin Chuanjun and Zhang Ping who collectively own 10.6%, to remove the current board.

Mr Gerald said:

If the two requisitioners cannot provide sufficient reasons for the proposed removal, then the attempt to remove the current board is irresponsible and disruptive.


Financially-strapped water treatment firm Hyflux held a townhall meeting with its stakeholders on Thursday, an event that was mediated by SIAS. About 1,000 people noteholders and shareholders attended, and although Hyflux was unable to provide details of how its restructuring efforts are progressing nor could it speak of where negotiations on the sale of its Tuaspring plant stand, stakeholders were reported to be reassured that the company is doing its best to keep Hyflux on an even keel and preserve value for everyone.

Wheelock’s privatization

Property stocks, which only recently were sold off after the government announced a fresh round of cooling measures on 5 July, enjoyed a boost when Wheelock Properties’ HK-listed parent launched a takeover-cum-privatization bid for the company at S$2.10 per share. On Thursday when the news was announced, Wheelock’s shares rocketed up S$0.44 or 25.3% to S$2.18 on volume of 26.3m, prompting observers to speculate that the market is banking on the offer price being raised. They added a further S$0.04 on Friday, to end the week at S$2.22.

Koufu’s debut

Food court operator Koufu debuted on Wednesday. Its shares had been offered at S$0.63 apiece and rose to an intraday high of S$0.66 on its debut before ending at S$0.63. They closed Friday also at S$0.63.

Defense is the best form of attack

OCBC Investment Research in its 18 July Singapore Strategy report said it does not think that global economic growth is headed for a major slowdown.

“Based on consensus estimates, economic growth rate is still healthy. The STI is currently trading at -1 SD (standard deviation) for both P/B (price/book) and price/earnings. Historically, when the index was at these levels, during the Global Financial Crisis (GFC) and the Chinese stock market crash (2016), these also presented opportunities to accumulate stocks for longer term investors. With the recent sell-down due to trade tensions, we are opting to be more prudent and have included several defensive stocks with good dividend yields into the list”.

Similarly, the top strategist at JPMorgan Asset & Wealth Management, Michael Cembalest, last week told investors that the growing trade war and its threat to markets and the economy means investors need to be very worried and that going defensive is advisable.

Mr Cembalest pointed out that this will be the first sustained rise in tariffs across the global economy in 50 years and it is a profound shift away from decades of historical precedent.

IMF warning on complacency

Last Monday, the International Monetary Fund (IMF) joined a growing chorus of observers in saying that financial markets are too sanguine about the threat that a US-instigated trade war poses to global growth and asset values.

“The risk that current trade tensions escalate further — with adverse effects on confidence, asset prices, and investment — is the greatest near-term threat to global growth,” said IMF chief economist Maurice Obstfeld who added that investors seem “broadly complacent” about the risks facing the global economy whilst noting that asset prices remain high in many countries.