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Slight Gains On STI Over First Full Week Of Trading
The first full week of trading brought the STI slightly higher on significantly good news from the US. However, any rally was quickly ruffed out by news that China’s growth could be moderating after an spurt of growth in 2H13.
This week, we saw major banks and analysts telling investors that the emerging markets could be facing a bad year in 2014. While the first week of 2014 is by no means indicative of the full year, we do seem to see some outflows of funds towards the developed world.
Top gainers for the week included Cordlife Group (+7 percent) after its CEO and shareholder, FIL Group increased their shareholdings. Other big gainers were Jaya Holdings (+11 percent) and Del Monte Pacific (+9 percent).
Read on to find out what happened over the week!
What Happened Over the Course of the Past 7 Days?
Source: FactSet Research Systems
In Singapore…
1. Factory Output Falls as PMI Contracts
For the first time in ten months, Singapore’s Purchasing Managers Index (PMI) fell below 50 points, coming in at only 49.7. This suggests that factory output is suffering from a moderate contraction.
The electronics sector recorded a PMI of 50.1, suggesting a slight expansion. This marked the 11th expansionary month for the key electronics sector, but growth has slowed sharply from previous months.
The PMI reading is compiled by the Singapore Institute of Purchasing and Materials Management. Analysts have pointed out that the looming Chinese New Year and cyclical pressures could be the cause of the decline.
2. Construction Demand Expected to Reach as Much as S$38 Billion in 2014
Demand from public sector construction projects could boost overall construction demand to as much as $38 billion in 2014. The Building and Construction Authority (BCA) expects demand to hit at least $31 billion in 2014.
This follows concerns that new construction project could slow in 2014 following strong expansion in 2013.
2014 now appears set to follow up on strong demand from 2013, which totaled $35.8 billion. While public sector demand should bolster the overall market, private demand is expected to moderate to between $12 to $16 billion, down from $21 billion in 2013.
Around the World…
3. China’s Services PMI Declines Sharply
More bad news from China. The nation’s HSBC services PMI recorded a sharp decline in December, falling to 50.9. This is the lowest reading since August 2011, and represents a steep slowdown from November, when the reading came in at 52.5.
This follows a contraction in manufacturing and new business expansion. All of China’s PMI indicators have remained above the 50 point market, however, as the economy has continued to expand, albeit slowly.
The weak services PMI figure seemed to have roiled Asian markets as several stock indices fell upon its release. If there was any bright spot in the report, it would be the fourth consecutive month of labour market improvement.
Observers contend that the improvement in China’s labour market could help bolster the nation’s manufacturing sector and in turn help the services market regain some of its lustre.
4. U.S. Trade Deficits Shrink to Four Year Lows
America’s trade deficits recorded a sharp decline in November, falling to a four year low of US$34.3 billion. This marked a 12.9 percent decline from October, and stands as the smallest recorded deficit since September 2009. The reading easily beat analysts’ estimates of US$40.4 billion dollars.
Exports also recorded a moderate 0.9 percent increase to US$194.9 billion. Exports increased due to demand for aircrafts and aircraft parts, chemicals, and finished metal products. Imports fell 1.4 percent to US$229.1 billion, amid declining oil prices and oil import volumes.
The rise in exports was an encouraging sign that global demand for US goods was picking up. This could ultimately help bolster the US economy in the next few quarters.
5. Emerging Markets Hit by New Year’s Sell-Off
Emerging markets around the world, including many of Singapore’s neighbors, such as Indonesia Thailand, and the Philippines, have experienced turbulent markets through the start of the New Year. These developments follow on the heels of the U.S. Fed’s plans to taper its quantitative easing policies.
Thailand has been hit by a wave of political instability with protesters threatening to take down the government. Meanwhile, both Indonesia and India have struggled to maintain the value of their currencies.
Across the emerging world, governments are struggling to cool-off lending and to encourage companies and individuals to take more prudent financial measures.
6. U.S. Job Growth Accelerates as Businesses Grow More Confident
U.S. job growth surged in December, adding 238,000 jobs. This number easily surpassed consensus estimates of 203,000 jobs. Importantly, the construction sector added 48,000 jobs, its best showing since 2006 before the onset of the financial crisis. Manufacturing growth slowed a bit, but the sector still added 19,000 jobs.
The reading also beat November’s strong hiring expansion of 229,000. Analysts believe increased hiring suggests that businesses are growing more confident and optimistic. It should be noted that the readings are not final and could be revised, either lower or higher, in the coming weeks.
The continued improvement in job figures could underpin any future Federal Reserve plan to taper its bond purchase programme further. The Fed is already expected to taper its programme this month by US$10 billion.
7. China’s Trade Surplus Narrows As Imports Increase
China’s imports grew as the government’s aim of bolstering domestic demand seems to be bearing fruit. Imports grew 8.3 percent while exports grew 4.3 percent. China’s total trade surplus stood at US$25.6 billion in December, narrower than initially projected.
Improving domestic demand could help support economic expansion in China even as rising domestic debt and economic policy reform seem to take some lustre off China’s growing economy.
Economists feel that the latest figure could give some comfort to investors who are worried that the Chinese economy could be heading for a slump in growth. However, with the global economy still in a period of adjustment, signs of recovery might quickly turn around.
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