Monthly wrap for September 2019: Trade, interest rates and impeachment

Date: October 2, 2019

  • The STI gained 13 points or 0.4% at 3,119.99 in Sep;
  • US-China trade, US interest rates, Trump impeachment were main items;
  • China’s manufacturing showed signs of life but concerns persist;
  • MAS reviewing 5% collateral requirement;
  • SGX RegCo warned market about trading in Mirach; queried DLF

It was a fairly eventful month, during which markets moved mainly in line with two considerations – the state of US-China trade and US interest rate expectations.

As the month drew to a close, a third factor to drive stock prices emerged in the form of the launch of a formal impeachment action against US President Donald Trump based on a phone call between Mr Trump and the Ukrainian president. It is alleged that Mr Trump sought to pressure Ukraine into opening an investigation into the son of political rival Joe Biden.

Although most observers believe the action will not lead to Mr Trump being removed from office because removal would require two-thirds support from the Senate which is controlled by Mr Trump’s Republican Party, it nevertheless has jolted markets.

The outcome of these developments as far as the Singapore market was concerned was a 13 points rise in the Straits Times Index over the four weeks to 3,119.99 in subdued trading that was focused mainly on the banks, Reits, the Jardine group and in the second line, stocks for which there were corporate developments, such as Yangzijiang Shipbuilding.

US-China trade – still no concrete progress

Stocks received some support from an announcement that China would send a trade delegation to the US in October to reopen talks. There was also hope of some form of resolution when both sides agreed to suspend tariffs for selected products.

However, as the month progressed, news that the US was looking at ways of delisting China companies trading on US exchanges rattled markets, even though the White House dismissed the stories as “fake news’’ and the US Treasury said has no plans to block Chinese listings “at this time’’.

China in the meantime, warned of instability in international markets if the news proved accurate.

China’s manufacturing improved slightly in Sep

China’s official Purchasing Manager’s Index came in at 49.8 in Sep, slightly higher than 49.5 in Aug. A private version of the survey published by Caixin magazine and HIS showed the PMI rising to 51.4 against 50.4 the previous month, the fastest pace of growth in 19 months. Both surveys rose on stronger domestic demand, with the new orders sub-index and production stronger month-on-month.

“This is unlikely to mark the start of a turnaround’’ said Martin Rasmussen, a China economist with Capital Economics in a 1 Oct report in The Business Times. “Not only is global demand set to weaken further, but the long overdue pullback in property construction is getting underway’’.

The official survey showed that Chinese factories continued to cut jobs last month. “The trade conflict between US and China had a notable impact on exports, production costs and confidence of enterprises’’ said Zhong Zhengsheng, director of macroeconomic analysis at Caixin subsidiary CEBM Group, quoted in the same BT report.

MAS is reviewing the 5% collateral requirement

The Business Times on 25 Sep reported that the Monetary Authority of Singapore is reviewing whether or not retail investors need to place 5% collateral for open positions next year.

The move was proposed in the aftermath of 2013’s penny stock crash involving Liongold, Blumont an Asiasons and is aimed at instilling responsible trading among retail investors and enhance credit risk management for securities intermediaries.

According to the BT report, MAS believes that the measures introduced since 2014 to improve market functioning and trading practices could mean the collateral requirement need not be introduced.

On the regulatory front – Mirach Energy and DLF

The Singapore Exchange’s (SGX’s) regulatory arm RegCo last month warned investors to be careful when trading in shares of Mirach Energy, stating that a small group of individuals are responsible for nearly 70% of the buy volume over a 7-month period. “These individuals appear to be connected to each other’’ added SGX RegCo.

It added that it is reviewing the trades and will take necessary action, including referring the case to the statutory authorities if warranted.

Separately, RegCo also queried DLF on the intent of offeror QRC in talking over DLF, and the relationship between QRC and DLF’s senior management.