Budget and virus provide main themes

Date: February 24, 2020

  • STI lost 40 points or 1.2% over the week at 3,181.03;
  • Prices rose and fell in line with virus news;
  • China confused the market with change in counting methodology;
  • The Government’s Budget provided a short-lived mid-week lift;
  • Banks weakened despite positive Q4 results;
  • SGX RegCo aims to formalise whistle-blowing

Changing virus news made for a volatile week

Trading direction during the week was set by two main factors – the state of the Wuhan virus outbreak and the government’s Budget that was unveiled on Wednesday.

For the virus situation, it was newsflows which dictated direction this making for a volatile five days and the flows alternated between positive and negative.

Initially, the lack of concrete negative developments was taken a positive sign and therefore provided some support to stock prices; however, the fact that China has changed its counting method for the second time in a week confused markets, and brought selling pressure.

China’s counting change didn’t help

On Thursday for example, stocks fell despite China reporting that the number of new cases in the Hubei province was only 349 compared to 1,700 the day before. This was because the second change to the way cases are counted raised questions over the reliability of data from the province which is the epicenter of the outbreak.

On 13 Feb, the first counting change added 15,000 new cases to the tally, causing alarm and triggering speculation that the spread could be out of control.

Bloomberg news in its report on Thursday’s change said there is growing mistrust over official data emerging from China, which has the vast majority of coronavirus cases and deaths globally, and suspicion that the country’s officials are prematurely promoting a narrative that the outbreak is coming under control.

The US Fed noted the threat from the Wuhan outbreak

The minutes of the US Federal Reserve’s latest Open Markets Committee meeting were released on Wed. “Some trade uncertainties had diminished recently, and there were some signs of stabilization in global growth. Nonetheless, uncertainties about the outlook remained, including those posed by the outbreak of the coronavirus,” said the Fed.

The Fed also said it viewed the current stance of monetary policy as likely to remain appropriate “for a time” provided incoming information remained broadly consistent with its outlook.

In the local market

The outcome as far as the local market was concerned was a generally weak five days, during which the Straits Times Index lost almost 40 points o2 1.2% at 3,181.03. Turnover was broadly within long-term averages, with dollar business done daily hovering between S$1-1.2b.

Local banks – victims of virus and/or “buy in anticipation, sell on news’’?

All three banks weakened on Friday despite all having reported decent earnings. On Friday itself, UOB and OCBC reported 10% and 34% rises in Q4 net profit to S$1.01b and S$1.24b respectively. Despite this, both stocks closed lower that day.

This was either a case of the market, having bought ahead of the results, then selling after the numbers were released. Either that or the selling was because of the uncertainty from the virus outbreak as the banks did express caution in the near term because about one-tenth of their loan portfolios is exposed to vulnerable sectors such as tourism, retail and manufacturing.

The Budget provided a short-term lift

As for the Budget, there was a short-term boost to stocks after the market learned of the $6.4b in measures to help the economy ride out the slowdown, but this proved short-lived, with prices weakening on Thursday and xx. According to some observers, the logic is that the Budget only provides short-term relief which may prove insufficient if the problem drags on for many months.

SGX RegCo to formalise whistle-blowing

Early in the week, The Business Times reported that the Singapore Exchange’s regulatory arm, SGX RegCo, is aiming to formalise whistle-blowing in the Listing Rules. The report also stated that SGX RegCo will ensure confidentiality, which should address the biggest obstacle to whistle-blowers coming forward.