S’pore in­vestors in for a rough ride af­ter Asia stocks tum­ble

The China Post - - WORLD BUSINESS - BY WONG WEI HAN

Jit­tery lo­cal in­vestors will be brac­ing them­selves for a rough ride in the com­ing months af­ter stocks across Asia took a ham­mer­ing in re­cent weeks.

In­vestors have grown in­creas­ingly ner­vous over the choppy eco­nomic out­look -- in par­tic­u­lar, mount­ing un­cer­tain­ties in main­land China.

This bear­ish mood may lock the Sin­ga­pore mar­ket in volatil­ity to­wards the end of the year, but some mar­ket watch­ers be­lieve pock­ets of op­por­tu­ni­ties await those seek­ing value.

Last Fri­day, the bench­mark Straits Times In­dex (STI) sank another 1.29 per­cent to 2,971.01, drop­ping be­low the key psy­cho­log­i­cal sup­port level at 3,000 for the first time since Fe­bru­ary last year.

This ex­tended STI’s full-month drop to around 11 per­cent, and the in­dex now looks to test the three-year low at 2,945 in Novem­ber 2012.

In­vestors are wring­ing their hands over a string of bad news com­ing out of main­land China, where the cen­tral bank last week moved to de­value the yuan in the coun­try’s big­gest cur­rency ad­just­ment in 20 years.

This was seen as a pol­icy move to boost China’s dwin­dling ex­ports, which slumped 8.3 per­cent last month while man­u­fac­tur­ing ac­tiv­ity shrank to their low­est level in 6 1/2 years in Au­gust, ac­cord­ing to a flash es­ti­mate on Fri­day.

“The sur­prise yuan de­val­u­a­tion last week un­leashed fears of com­pet­i­tive cur­rency de­val­u­a­tion in the re­gion.

The Sin­ga­pore mar­ket suf­fered col­lat­eral dam­age in the re­sult­ing cap­i­tal flight from the re­gion.

Growth con­cerns over China have prob­a­bly also added to the risk-off selling,” said Kum Soek Ching,

Credit Suisse’s re­gional re­search head for pri­vate bank­ing and wealth man­age­ment.

“It is dif­fi­cult to say how low the mar­ket will go in this risk-off mode, as it is no longer about val­u­a­tions, but more about sen­ti­ment. The 3,000 level is a psy­cho­log­i­cal sup­port that, if bro­ken, could at­tract more ca­pit­u­la­tion selling.”

Ex­it­ing the Mar­ket?

On the trad­ing floor, a grow­ing num­ber of in­vestors are try­ing to get out of the choppy mar­ket.

Remisier Alvin Yong said: “Most of my clients have in­structed me to look for op­por­tu­ni­ties to exit -they would rather have the safety of cash now. But many are stuck be­tween a rock and a hard place be­cause it’s hard to find a good value point to sell in a weak mar­ket like this.”

Re­flect­ing that panic, even the pre­vi­ously de­fen­sive bank­ing coun­ters are be­ing sold down ag­gres­sively, with OCBC and United Over­seas Bank 52-week lows.

Last Fri­day, OCBC dropped 2.05 per­cent to SG$ 9.10 ( US$ 6.43), UOB was down 2.8 per­cent to SG$ 19.11, and DBS Group Hold­ings pared 1.03 per­cent to SG$18.29.

The lo­cal banks are one of Sin­ga­pore’s cor­po­rate sec­tors with rev­enue ex­po­sure to the Greater China mar­ket. Pre-tax earn­ings from China were 6.3 per­cent of to­tal for DBS in the first half this year, 10.5 per­cent for UOB, and 19 per­cent for OCBC.

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Prop­erty, Con­sumer, Off­shore

and Marine Firms Hit

Prop­erty de­vel­op­ers and con­sumer com­pa­nies are other sec­tors shunned by in­vestors amid the main­land China scare, an­a­lysts at OCBC In­vest­ment Re­search said.

One of them, Eli Lee, said: “A weaker yuan will likely have a forex trans­la­tion im­pact in terms of as­set val­u­a­tions and earn­ings for de­vel­op­ers who have diver­si­fied their ex­po­sure into China sig­nif­i­cantly. In par­tic­u­lar, China is a key mar­ket for Cap­i­taLand which has 45 per­cent of its to­tal as­sets based there.”

“China con­trib­utes an es­ti­mated 30 per­cent of top line for Osim In­ter­na­tional and Bread­Talk Group. For Bread­Talk, ev­ery 5 per­cent de­cline in yuan against Sin­ga­pore dol­lar will see around 3 per­cent drop in net profit.”

Bread­Talk dipped to its ful­lyear low at SG$1.12 last Thurs­day be­fore ris­ing to SG$1.155 on Fri­day, when Cap­i­taLand was flat at SG$3, just a hair above its ful­lyear low of SG$2.94.

But the pres­sure on the mar­ket is not just com­ing from main­land China. Re­gional economies, in­clud­ing Sin­ga­pore, are of­fer­ing just as few rea­sons to cheer due to their own slug­gish­ness.

Ear­lier this month, the Min­istry of Trade and In­dus­try nar­rowed its growth forecast for Sin­ga­pore this year from a 2 to 4 per­cent range to a 2 to 2.5 per­cent range, af­ter gross do­mes­tic prod­uct con­tracted 4 per­cent quar­ter-on­quar­ter in the sec­ond quar­ter.

This has led to the soft­en­ing of re­gional cur­ren­cies, with the United States dol­lar ris­ing around 3.2 per­cent against the Sin­ga­pore dol­lar over the past month.

Mean­while, tum­bling oil prices still have a choke-hold on off­shore and marine plays, with Sem­b­corp Marine and Kep­pel Corp both lan­guish­ing at their full-year lows.

Value-hunt­ing

A look at these dif­fi­cult con­di­tions gave few rea­sons to cheer for the out­look, DBS Group Re­search an­a­lyst Jan­ice Chua cau­tioned.

“Post the sec­ond quar­ter, we trimmed our earn­ings forecast for 2015 and 2016 by 3.6 per­cent and 3.2 per­cent re­spec­tively.

“Earn­ings growth for the STI com­pa­nies was cut to a flat­tish 1 per­cent for 2015, with pos­si­bil­ity of fur­ther down­side,” she said.

“With earn­ings growth de­clin­ing to a flat to neg­a­tive ter­ri­tory, the STI is trapped within a trad­ing range of 2,900 to 3,300 go­ing for­ward.”

But Kelvin Tay, UBS Wealth Man­age­ment’s re­gional chief in­vest­ment of­fi­cer, holds a more pos­i­tive view on the lo­cal mar­ket.

“As the al­ready volatile in­vest­ing en­vi­ron­ment is likely to get more com­plex over the next six months, we have de­cided to re­duce the risk lev­els in our Asian strat­egy and fo­cus on the tra­di­tion­ally more de­fen­sive mar­kets in Asia.

“We up­grade Sin­ga­pore to over­weight due to its low beta and de­fen­sive char­ac­ter­is­tics.”

MSCI Sin­ga­pore -- which tracks the large and mid- cap stocks here -- is now yield­ing close to a 3.8 per­cent re­turn, be­hind only Tai­wan’s 4 per­cent in the re­gion, Tay noted.

Yong agreed that there is scope for value-hunt­ing now: “But you should pace the ac­cu­mu­la­tion out care­fully to give your­self some breath­ing room.

“Sec­tors that you can look at in­clude util­i­ties, which gen­er­ate strong cash flow; trans­port, which ben­e­fit from the low oil prices; and banks, to po­si­tion for the up­com­ing in­ter­est rate hike and bet­ter mar­gins.”

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