Cor­re­la­tions you need to know

Singapore Business Review - - FIRST -

Some read tea leaves, oth­ers con­sult for­tune tell­ers, and more still rely on an­a­lysts’ pre­dic­tions. What­ever your method is, try­ing to pre­dict which di­rec­tion the stock mar­ket will move is a time hon­oured tra­di­tion.

It’s help­ful that the chart­ing wizards at Citi Re­search have crunched loads of charts and have come up with the ones that seem to most cor­re­late with the movements in the stock mar­ket. So which charts should you be look­ing at?

Elec­tron­ics in­dus­trial pro­duc­tion

First off, even though you may think Sin­ga­pore has be­come a fi­nan­cial ser­vices cen­tre, sur­pris­ingly elec­tron­ics man­u­fac­tur­ing out­put still cor­re­lates pretty well with the STI. Man­u­fac­tur­ing re­mains the largest con­trib­u­tor to Sin­ga­pore GDP – 21% of 3Q16 GDP and 2015 GDP – and al­though this has shrunk ver­sus lev­els from a few years ago, elec­tron­ics in­dus­trial pro­duc­tion has tracked stock-mar­ket cy­cles well in the past, notes Citi. “This has shown a mean­ing­ful uptick since Jan­uary 2016, reg­is­ter­ing trends sim­i­lar to bot­toms of 2001, 2009, and 2011.”

Port con­tainer through­put

Still stay­ing on a trade theme, the other fig­ures to watch are the num­bers of con­tain­ers pass­ing through Sin­ga­pore’s ports, which also seem to be a pretty good barom­e­ter of which way the mar­ket is head­ing, al­though there has been a slight de­vi­a­tion. As Citi notes, port con­tainer through­put and sea-cargo statis­tics have also been use­ful for track­ing stock-mar­ket cy­cles in the past. Like many other trade in­di­ca­tors, this has de­vi­ated from his­tor­i­cal trends in re­cent years.

The Trump fac­tor

But per­haps the cor­re­la­tion you should be pay­ing the most at­ten­tion to this year lies with Pres­i­dent Don­ald Trump and his ef­fect on the US Fed­eral Re­serve as they mull how much and how of­ten to in­crease in­ter­est rates. Be­cause, as this chart shows, wher­ever the US dol­lar in­ter­est rate goes, the Sin­ga­pore dol­lar in­ter­est rate fol­lows.

Some read­ers may be too young to re­mem­ber what life was like back when Sin­ga­pore in­ter­est rates were above 7%, but if any­thing could up­set the stock mar­ket and home prices, it would be in­ter­est rates that rise faster than ex­pected. And for that, look to Amer­ica, not do­mes­ti­cally.

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