Markets Insights

Cautious Singapore trading likely this week

A trader at the New York Stock Exchange last Thursday. Wall Street had its worst first five days' showing of a year in history, with the Dow losing 6.2 per cent.
A trader at the New York Stock Exchange last Thursday. Wall Street had its worst first five days' showing of a year in history, with the Dow losing 6.2 per cent.PHOTO: REUTERS

STI set to stay soft given Wall St's poor show last Friday despite strong US jobs report

Singapore stocks are expected to start the week soft following Wall Street's poor performance last Friday despite a strong United States jobs report.

Local investors will also be cautious ahead of the corporate earnings season that kicks off this week.

"The STI is likely to enter another weak and cautious trading week amid the poor performance of the Dow and the Chinese markets," remisier Alvin Yong said, referring to the Straits Times Index.

In New York, the Dow Jones Industrial Average fell 1 per cent last Friday despite US non-farm payrolls increasing 292,000 in December, and the jobless rate steady at 5 per cent. Traders say the gloom is likely to carry over this week as US companies also start to report earnings for the last quarter of 2015.

"While the current situation gives rise to the opportunity to bargain- hunt for stocks, especially blue chips, the lack of strong global positive news could hinder a meaningful (STI) rebound," said Mr Yong.

The STI ended the first week of 2016 down 4.6 per cent, while Wall Street had its worst first five days' performance of a year in history, with the Dow losing 6.2 per cent.

This was in the wake of the Chinese yuan falling to its lowest level in nearly five years, exacerbating worries over China's economy. Oil prices sank to 12-year lows.

Panic selling by Chinese investors on earlier expectations that a six-month ban placed on selling of shares would end didn't help, nor did circuit breakers to prevent a stock free fall. Instead, the automated trading halt made the sell-off worse as investors bailed out even harder when it looked set to kick in.

But Chinese stocks stabilised on Friday after the authorities guided the yuan higher and suspended the circuit breaker mechanism.

The Shanghai bourse also issued a circular on Saturday to limit the share sell-off rate for large shareholders to pre-empt massive dumping of shares. A six-month share sale ban imposed last year on listed firms' major shareholders expired last Friday. According to the circular, major shareholders with stakes at 5 per cent or above will be barred from selling more than 1 per cent of a listed firm's share capital through the stock exchange's centralist bidding system every three months.

Traders are now eyeing China's exports, imports and trade balance data to be released on Wednesday, as well as its new yuan loans to the business sector after last week's mayhem, which left the Shanghai Composite Index down 10 per cent - its largest weekly decline since August last year.

But Bank of Singapore chief economist Richard Jerram said global markets appear to have "over-reacted" to the turmoil in Chinese equities. "For many years, swings in the Chinese equity market have had little connection with the real economy, and the equity market crash in the second half of last year has had limited economic impact," he said.

Meanwhile, China's foreign exchange reserves fell by US$107.9 billion (S$155.8 billion) in December to US$3.33 trillion at end-2015, the lowest level in more than three years, central bank data showed.

Nevertheless, China still holds the world's largest foreign exchange reserves, despite the sharpest monthly fall on record partly due to the US Federal Reserve starting to raise rates last month.

The State Administration of Foreign Exchange maintained that the Chinese economy's fundamentals are sound and its financial system is "stable and healthy".

Meanwhile, the local earnings season starts with Singapore Press Holdings announcing its first-quarter 2016 results and Qian Hu Corp releasing its fourth-quarter 2015 results tomorrow.

Maybank Kim Eng, in its 2016 outlook, said it expects more corporate restructuring, privatisations or takeovers in the property and healthcare sectors, and especially in offshore & marine which it flagged as "a major Achilles heel" last year.

A version of this article appeared in the print edition of The Straits Times on January 11, 2016, with the headline 'Cautious S'pore trading likely MarketsInsights'. Print Edition | Subscribe