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STI Sinks With Doubts Over China And Emerging Markets
Another bank has joined the chorus of banks raising concerns about emerging markets. Societe Generale, has joined US banking giants, Goldman Sachs, Morgan Stanley and JPMorgan in highlighting a bleak outlook for emerging markets.
Correspondingly, the negative outlook on emerging markets have spread to Hong Kong and Singapore due to geographical as well as economic proximity. 2014 looks to be a challenging year and investors need to be alert now, more than ever.
Top gainers for the week included United Envirotech (+13 percent) after it announced that it would be holding an EGM regarding the proposed acquisition of Memstar Technology. United had also previously announced a RMB250 million contract win. Other big gainers were Centurion Corp (+7 percent) and VICOM (+4 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
Singapore Market Commentary
In Singapore…
1. Deputy PM: Will Take Years to Restructure the Economy
According to Deputy PM Tharman Shanmugaratnam, the Singaporean government is working to restructure the economy to create a fair and equitable society with more well-paying jobs and higher wages. This transformation, however, will be a multi-year effort requiring patience and effort.
The government’s current efforts are focusing on helping SME’s scale up through the “Production and Innovation” credit (PIC), which provides both cash payments and tax credits to companies that invest in methods to increase productivity. Shanmugaratnam said that many government efforts are underway, but most are still in early stages.
Many companies currently rely on the PIC grant for projects that ultimately support the SMEs in Singapore. These statements by Shanmugaratnam seem to imply that the government will continue the PIC scheme in its Budget for 2014.
2. Business Optimism Waning in the First Quarter
The Singapore Commercial Credit Bureau (SCCB) has released its quarterly Business Optimism Index (BOI). The poll is released once per quarter and measures the opinions of 200 of Singapore’s top business leaders. The BOI found declining optimism among most business leaders.
The overall BOI score fell to +13.13 this quarter, from +33.98 during the 4th quarter in 2013. This suggests that firms are growing more cautious, and taking a more moderate approach in their outlook. A weak BOI reading suggests that businesses may be more cautious in investments and hiring.
3. Moody’s has negative outlook on SG Banks
Moody’s has announced that it now has a negative outlook regarding Singapore’s banks. The agency said that surging loan volumes, in combination with skyrocketing housing sales, are creating concerns.
The agency did say, however, that Singapore’s banks are well-capitalized and should be able to weather any setbacks.
Moody’s also announced negative outlooks for other Asian countries, explaining that credit quality in Asia has peaked. Vietnam and India, among others, were also downgraded in the recent announcement.
4. Singapore’s Inflation Eased in December
Singapore’s YOY headline inflation rate came in at 1.5 percent in December, easing from 2.6 percent in November, which marked an eight month high.
Accommodation still rose by nearly 3 percent, but private road transportation costs actually posted a 2.8 percent decline. Most other indicators rose, but not as steeply as in November.
The Monetary Authority of Singapore (MAS) has been putting the Singapore dollar on a steady appreciation trend in order to battle imported inflation. While this has largely helped to keep inflation figures steady, the strong Singapore dollar has hurt the export sector, rendering Singapore exports less attractive than other exporters.
This has undoubtedly hurt the manufacturing sector that is heavily linked to exports due to limited domestic demand.
Around the World…
5. IMF Growing Upbeat Regarding Global Growth
Some investors might be growing concerned about the global economy, but the IMF is actually becoming more optimistic. The IMF projects that the global economy will grow by 3.8 percent in 2014, up from its October projections of 3.7 percent. The IMF projects the USA growing by 2.8 percent and China growing by 7.5 percent.
The recent upgrade came with some cautious warnings, however, as the IMF noted that growth will be uneven and inflation could be dangerously low. The IMF urged central banks to restrain from raising interest rates because economic growth is still fragile.
6. China’s Economy Losing Momentum as Investments Cool
China’s economic growth slowed in the fourth quarter of 2013, largely due to a slowdown in investments and a cooling manufacturing sector. The slowdown was relatively minor, with GDP growth (YOY) dropping to 7.7 percent, compared with a reading of 7.8 percent from the 3Q. It should be noted, however, that the reading actually beat projected estimates.
Slowing economic growth will only add more pressure on an economy already struggling to deal with credit problems, slumping domestic demand, and other challenges. Following the news, Chinese stocks dropped to a 5 month low.
7. Chinese Manufacturing Unexpectedly Contracts
The Chinese manufacturing sector is projected to contract this January, with HSBC’s flash Purchasing Managers’ Index (PMI) coming in at 49.6. The reading falls far below the 50.3 reading that economists were expecting and suggests that manufacturing sector is suffering from a mild contraction.
While the Chinese manufacturing sector has been growing more slowly than hoped in recent months, a contraction is more unsettling than slow growth. It is believed that the contraction was caused by slumping domestic demand, not exports.
8. Emerging Markets Hit By Sell-Off
The currencies of various emerging markets have been hit hardover the last few days. Mounting fears surrounding the Chinese economy, along with the U.S. Fed’s plan to continue forward with its tapering program, are causing outlooks regarding many emerging markets to turn negative.
Instability in global currency markets could have dramatic impacts on financial systems across the globe.
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