Wuhan worries take centre stage

Date: January 27, 2020

  • Wuhan virus epidemic brought selling pressure – shades of Sars;
  • STI lost 41.01 points or 1.3% over the week at 3,240.02;
  • US-China trade deal pushed to the background – but for how long?
  • IMF trimmed its growth forecasts;
  • Two CapitaLand Reits proposed $8.27b merger;
  • SGX issued notice of compliance to Catalist sponsor RHT Capital


Wuhan virus worries knock stocks – shades of Sars

It has been 17 years since worries surrounding the spread of a contagious disease affected the stock market but last week saw history repeat itself when prices came under pressure after news of a new coronavirus which started in Wuhan in China and appears to be spreading throughout the region.

Back in 2003, it was the Sars epidemic that had investors scrambling for the exits, although the market did eventually recover. This time round, there are hopes that the time for recovery might be much shorter, given that prices rebounded almost immediately after a selloff on Monday.

Over the course of the week, the Straits Times Index traded within a narrow band, finishing Friday with a 5.46 points gain at 3,240.02 but it wasn’t enough to prevent the index from recording a nett loss of 41.01 points of 1.3%, for the four-and-a-half day week.

Wall Street was also spooked

The outbreak of pneumonia in China’s Wuhan province is caused by a coronavirus that usually infects animals but can jump to humans. The first case of the Wuhan virus in the U.S. was confirmed on Tuesday, injecting some caution into trading there.

US authorities on Friday confirmed a second case of coronavirus within the country. China continues to institute multicity lockdowns in an effort to control the outbreak, and concerns over the negative impact on its economy are brewing.

IMF trimmed its growth forecasts

Elsewhere, news that the International Monetary Fund (IMF) has trimmed its growth forecasts also play some part in dampening sentiment.

On Monday, the IMF said uncertainty in US-China trade tensions, along with sluggish growth in India, will put a drag on the global economy in 2020.

Just before the World Economic Forum in Davos, it reduced its growth forecast for 2020 by 0.1% to 3.3%, although this is an increase from 2019’s 2.9%.

There are preliminary signs that the decline in manufacturing and trade may be bottoming out. This is partly from an improvement in the auto sector as disruptions from new emission standards start to fade. A US-China Phase I deal, if durable, is expected to reduce the cumulative negative impact of trade tensions on global GDP by end 2020—from 0.8 percent to 0.5 percent’’ said the IMF.

US-China Phase One trade deal took a backseat – but for how long?

With the Wuhan outbreak on everyone’s minds, the recently-signed US-China Phase One trade deal took a backseat last week. However, although markets have largely welcomed the deal, investors should be aware that doubts remain.

In his “US-China trade deal: More optics than substance’’ published in The Straits Times on Wednesday, Associate Editor Vikram Khanna described the deal as impractical, unfair to other countries and potentially illegal in terms of compliance with World Trade Organisation (WTO) rules.

This is because for China to increase its imports from the US by more than 50% from 2017 levels at a time when its economy is growing at the slowest pace in 29 years, it will have to substitute imports from other countries.

So as it ramps up its purchases from the US, it will be forced to buy less from others: less soybeans for example, from Brazil and Argentina; less farm products, manufactured goods and services from the European Union, Canada, Australia, Japan, South Korea and South-east Asia; and less energy products from Russia and the Middle East’’ wrote Mr Khanna.

The preferential treatment China will have to accord to the US….will amount to managed trade under a system of import quotas, which is illegal under WTO rules’’.

Mega-merger of two CapitaLand Reits

The main talking point in the local market was news that CapitaLand Commercial Trust (CCT) and CapitaLand Mall Trust (CMT) are proposing an $8.27b merger to create an entity to be known as CapitaLand Integrated Commercial Trust. It will have a market cap of $16.8b and a combined property value of $22.9b, making it the third largest Reit in the Asia-Pacific.

Under the proposed trust scheme of arrangement, CMT will acquire each CCT unit for $0.295 in cash and 0.72 CMT unit at an issue price of $2.59 each.

SGX issued notice of compliance to RHT Capital

The Singapore Exchange (SGX) on Wednesday issued a notice of compliance to Catalist sponsor RHT Capital (RHTC) over potential conflicts of interest from RHTLaw Taylor Wessing and other RHT Group entities servicing RHT-sponsored firms.

RHTC is the continuing sponsor of 24 Catalist issuers, including Synagie Corp, Metech International, Jubilee Industries and Accrelist. The exchange noted in its letter to RHTC’s board that Synagie and Metech have engaged RHT Corporate Advisory as their share registrar, whilst Jubilee and Accrelist have engaged RHT Communications and Investor Relations as their investor relations team.