Date: January 21, 2019
- Straits Times Index gained 26 points or 0.8% over the week at 3,224.34 but liquidity remained weak;
- US-China trade hopes provided the main support – but still nothing concrete yet;
- China’s economy remains a concern after disappointing Dec exports;
- Singapore’s growth also a concern after unexpected fall in Dec NODX;
- MAS announced bold scheme to attract listings, provide research funding;
- CapitaLand to buy Ascendas-Singbridge in $11b deal
1. “Most news is bad news” has shifted to being “most news is good news’’
Since the start of 2019 stock markets have operated on the basis that most news is good news, despite there being no concrete developments on the US-China trade front, no sign of when the US government shutdown might end and the UK government’s humiliating defeat on Tuesday when the country’s Parliament voted overwhelmingly to reject Prime Minister Theresa May’s Brexit deal.
2. China’s economic worries
On Monday, markets weakened after China reported a 4.4% drop in December exports. The news, together with Apple’s announcement late last year about declining sales because of a slowdown in China, led to fresh concerns over the country’s growth and impact on the global economy.
However, hopes that the Chinese government would embark on stimulus measures and encouraging earnings later in the week announced by Goldman Sachs, Bank of America and United Continental helped Wall Street and by extension the rest of the world’s markets, resume their uptrend.
3. US-China trade talks optimism
Adding to this optimism was a Wall Street Journal report on Thursday that some Trump administration officials are pushing for a lifting of tariffs on China. Those reports were denied by the Treasury but whatever the case, the upshot of it all was that the Straits Times Index managed to regain the troublesome 3,200 level last week when it rose 26 points or about 0.8% to 3,224.34.
As always, the gains were driven by the banks, Jardine group and Singtel. Turnover however, has not been particularly good, with an average of $950m done daily last week. Volume ranged from a low of $727.4m on Monday to a high of $1.17b on Tuesday.
4. In local news
4.1 December’s NODX was disappointing
On Thursday came news that December’s non-oil domestic exports fell 8.5% year-on-year, versus expectations of 2% growth. The fall was led by an 11.2% drop in electronic exports. OCBC’s economist was quoted in the Business Times as saying this was in line “with the recent trade data disappointments out from China, South Korea, Taiwan, Philippines and even Indonesia’’. There are now expectations that trade weakness could extend throughout the year ahead.
4.2 Capitaland and Ascendas-Singbridge
Among local developments of note was news on Monday that CapitaLand has tabled an offer worth S$11b to buy Ascendas-Singbridge from Temasek Holdings in a deal that would make CapitaLand one of the top 10 real estate investment managers globally since assets under management (AUM) would rise from $93b to $116b in 30 countries.
Temasek would receive $6b, half in CapitaLand shares and half in cash. After completion, Temasek would own 51% of CapitaLand, up from 40.8%. Temasek and JTC Corp currently jointly own Ascendas-Singbridge.
4.3 MAS launched GEMS
Also worth mentioning is that the Monetary Authority of Singapore (MAS) on Monday unveiled a $75m initiative to boost equities research and enhance Singapore’s status as a listing destination.
The initiative is named Grant for Equity Market Singapore or GEMS and will comprise co-funding for listing costs for companies with particular focus on the “new technology’’ sector. It will also co-fund the salaries of equity research analysts by 50-70%. The move was welcomed by observers as the provision of good quality research would surely benefit the investing public.
4.4 Property news – both positive and negative
Private home sales (excluding ECs) plunged to 602 units last month, about half the 1,201 units sold in Nov due to absence of new launches and the usual slowdown in year-end marketing activity.
However, the figure was up 40% against the 431 units sold in Dec ’17. Almost all of the 101 private homes released were from Affinity at Serangoon. For 2018, developers sold 9,264 units, down 12.3% from 10.566 units in 2017, though 40% of sales were transacted in last five months of last year,indicating encouraging demand despite the July 6 cooling measures.
5. Could 2019 be good for stocks?
Last year was not good for most stock markets – the STI lost 10% – but fund managers Schroders believes 2019 will be positive. In its latest outlook titled “Why 2019 may be a better year for investors’’ it said greater realism has arrived with the plunges in stock markets, particularly since September last year, which means markets are pricing in more risk and therefore behaving more in line with fundamentals.
“Schroders’ economists expect a gradual slowdown in growth in the US in 2019 and 2020. The emphasis is on the word gradual: we do not see a recession as likely in 2019 (although not inconceivable in 2020) as many of the forces that led to a strong year in the US in 2018 are still in play. The slowdown, however, means that an end to the cycle of rising interest rates is in sight. If we are right that interest rates rise no further than 3%, that is a modest peak compared to past economic cycles.
Our equity fund managers all point to slightly higher inflation this year as helpful to those companies that have strong market positions and the ability to raise prices. They also see more attractive valuations for many companies. Even in Europe and the UK, where growth has been disappointing, the income return from dividends alone looks more attractive compared to cash or bonds than for some time. Equities do, of course, carry greater risk along with potential for higher returns though’’.
