Correlations you need to know
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.