Date: August 20, 2018
- Straits Times Index fell for 5 straight days, losing 75 points or 2.3%;
- Turkey’s economic problems prompted contagion worries for emerging markets;
- Slowing China and stock market weakness added to market’s concerns;
- July’s NODX grew 11.8%, mainly thanks to pharmaceuticals;
- Singapore interest rates rise to 10-year high.
The Singapore market’s performance
Trading last week was wholly dictated by external events, mainly Turkey’s economic problems which were aggravated by a tit-for-tat trade war with the US that bred fear that other emerging markets would then suffer contagion effects.
Adding to overall market worry was weakness in China – the yuan weakened to a 15-month low against the US dollar on Wednesday and flirted with a key support level not seen since 2008 as the dollar extended gains and a raft of data pointed to further slowing in China’s economy.
This in turn triggered a selloff in China and Hong Kong’s stock markets, adding to the drag on local stocks. The Straits Times Index fell every day between Monday and Thursday, falls which extended its loss to six straight days if the previous week’s trading is counted. During its Mon-Thurs slide the index lost a total of 75 points or 2.3% to end at 3,209.44. The loss of certain key support levels was disconcerting for some technically-inclined observers, with all eyes on the 3,200 level next. For the year to date, the index is now down 5.7%.
Not surprisingly, the main index movers were the banks and Jardine Matheson, though Singtel’s slow but steady decline over the past month has also caught the eye. It recently reported a net profit of S$733 million for its first quarter for FY2019 that ended on 30 June, a figure which disappointed the market.
In its 10 August report on Singtel, UOB-Kay Hian said it had expected Singtel to report earnings of S$794 million and so has now cut its net profit forecast for FY19 for the telco by 13.5% and 15.1% for FY20. However, it maintained a “buy’’ on Singtel with a S$4.05 target based on a discounted cash flow analysis. The stock dropped S$0.03 over the week to end at S$3.11.
In other local news, the key SIBOR (Singapore Interbank Offer Rate), which is a common benchmark to pricing home loans, rose to 1.64%, a level last seen in September 2008.
Pharmaceuticals prop up July’s NODX
The stock market may have turned in a weak showing but there was at least good news on the economic front last week when the government announced that July’s non-oil domestic exports or NODX grew by a better-than-expected 11.8% versus projections of about 7.4%.
However, most of this came from non-electronic exports, mainly pharmaceuticals, food preparations and primary chemicals. “Pharm output and exports can be rather volatile, depending on the turnaround for each production cycle, so it is unclear how long this current uptick will sustain beyond the immediate months ahead’’ said OCBC’s head of treasury research who was quoted in a Business Times report.
Turkey and China
Confidence in Turkey’s economy has been gradually eroding this year – the lira at the start of last week had lost about 45% since the start of 2018 whilst the yield on the government’s 10-year bond stood at 20.34%.
The latest hit came the previous week crisis after US President Donald Trump announced via Twitter a doubling of steel and aluminium tariffs on Turkey, as Washington pushed Ankara to release Evangelical Christian pastor Andrew Brunson, who is being held on terrorism charges.
On Wednesday, Turkey responded with tariffs of its own on US cars, tobacco and alcoholic beverages. However, although stocks were sold off in response, the entry of Qatar into the picture helped inject some stability. Qatar is reported to have pledged investment of around US$15 billion in Turkey following talks with Turkish President Recep Tayyip Erdogan in Ankara.
President Erdogan has blamed the lira’s fall on an “operation against Turkey” rather than prevailing economic conditions, calling it “deliberate attacks”. Analysts agree, saying the dispute with the US has contributed to the lira’s plunge.
Whatever the case, worries that Turkey’s problems could spread to other emerging markets manifested in spillover weakness in other currencies, most notably the South African rand, Indian rupee and Chinese yuan.
China
Reports on China’s economy have not been particularly encouraging and observers believe that the country’s trade problems with the US are starting to bite. Last week, it was reported that fixed-asset investment expanded by a less-than-expected 5.5 percent in January-July, a result of Beijing’s crackdown on lavish local government borrowing for projects to boost growth, whilst industrial output also undershot expectations, weighed down by pollution curbs and the uncertain trade outlook.
The government has pledged to ramp up spending on railways and roads — its traditional “go-to” approach when the economy slows — while the central bank is pumping more money into the system and urging banks to offer more loans at cheaper rates to small businesses.
Meanwhile in the stock market, tech shares came under pressure after China’s Tencent Holdings Ltd reported its first quarterly profit fall in nearly 13 years on weak gaming revenue.
