Markets Insights

Another week of market volatility looms

The slowdown in China's economic growth has been a major factor in the recent turmoil on global markets.
The slowdown in China's economic growth has been a major factor in the recent turmoil on global markets.PHOTO: BLOOMBERG

Fears over China and oil expected to continue to unsettle investors despite rally last week

The turmoil that has gripped financial markets globally in recent weeks is far from over and volatility is likely to persist this week.

Concerns over China's slowing economic growth and plunging oil prices have whipsawed traders in recent weeks, wiping some US$7.8 trillion (S$11.1 trillion) off global equities so far this year.

Regional markets went through a roller-coaster ride last week, chalking up steep losses before seeing a turnaround.

Wall Street joined the rally as it added 1.3 per cent on Friday, led by energy shares, marking its first weekly gain this year at 0.7 per cent. Singapore's benchmark Straits Times Index rose a sturdy 44.39 points or 1.75 per cent to 2,577.09, but was down 2 per cent for the week.

Prices of Brent crude oil - which have tumbled in recent weeks on mounting worries over growing oversupply - similarly rebounded, climbing to levels above US$32 a barrel.

NEW YEAR CASH

We may also expect an increase in cash injections via open market operations as Chinese New Year approaches, which usually sees a spike in demand for monies.

IG MARKET STRATEGIST BERNARD AW,on investors' attention remaining focused on China

"It's a classic oversold bounce after Draghi's comments (last week) and the noise on Japanese stimulus overnight. The question is where do we go from here," Ms Veronika Pechlaner, who helps oversee US$10 billion at Ashburton Investments, told Bloomberg. Dr Mario Draghi is the European Central Bank president.

"It's become harder and harder for stimulus to really support the economic fundamentals, so it doesn't mean a medium- and long-term change, but at least we have a bit more stable trading environment for a couple of days."

Still, the same fears - over China and oil prices - will remain in the spotlight this week, noted IG market strategist Bernard Aw. China will again be the centre of attention on Wednesday when it releases data on December's industrial profits.

"The focus will be on further yuan devaluation, which I feel is a high possibility. But (it will happen) gradually, not sharply," Mr Aw said.

"We may also expect an increase in cash injections via open market operations as Chinese New Year approaches, which usually sees a spike in demand for monies."

Traders will also pay close attention to developments in the US as the Fed meets for the first time tomorrow since raising interest rates in December.

"It is widely expected that the US central bank will not move on interest rates... (but) any indications of a more dovish statement will fan rumours that the Fed may eventually have to consider (a fourth round of quantitative easing)," said Mr Aw.

In Asia, the Bank of Japan is scheduled to set its monetary policy on Friday as the country releases key figures on inflation, unemployment, industrial production and retail sales throughout the week.

The corporate reporting season is in full swing here, and several big firms will release their reports this week, including SMRT Corporation, Sats and Hutchison Port Holdings Trust. But if last week was anything to go by, the season could be a tough one for all.

Bourse operator Singapore Exchange (SGX) on Thursday posted a 3 per cent dip in net profit for the quarter to Dec 31, while revenue was stagnant at $194.6 million.

Keppel Corporation reported a 44.2 per cent dive in net profit to $404.8 million for the fourth quarter, as revenue shrank 36.8 per cent to $2.48 billion. The group, which has been hard hit by the collapse in oil prices, also said it has made a provision of about $230 million for possible losses in Brazil.

SGX shares closed nine cents or 1.3 per cent higher at $6.82 on Friday, while KepCorp closed 22 cents or 4.6 per cent up at $5.02.

A version of this article appeared in the print edition of The Straits Times on January 25, 2016, with the headline 'Another week of market volatility looms MarketsInsights'. Print Edition | Subscribe