Markets Insights

Investors await key US, China events

The Nanjing Road pedestrian street in Shanghai. China's leadership is likely to use its Five-Year Plan to signal that it is not wavering on the need for structural reform, Capital Economics economist Julian Evans-Pritchard said.
The Nanjing Road pedestrian street in Shanghai. China's leadership is likely to use its Five-Year Plan to signal that it is not wavering on the need for structural reform, Capital Economics economist Julian Evans-Pritchard said.PHOTO: BLOOMBERG

US Fed panel to meet; China policy-setting session to map govt's five-year economic plan

This week, two key events in the East and West will be keenly watched by investors worldwide.

In the East, China will host its fifth plenary session, a four-day policy-setting meeting that will map the government's main economic development initiatives for the next five years.

More than 11,500km across the globe, US central bank governors will meet to discuss the United States economy and monetary policy.

FEARS RECEDING

Policy easing so far... does seem to be helping. Credit growth is picking up and government spending too. Fears that the economy was rapidly decelerating seem to have receded.

MR MARK WILLIAMS, Capital Economics chief Asia economist, on China's controlled easing cycle.

Both key events will set the market tone for the rest of the week - and, probably, the year.

So far, signs are looking up. When the market opens today, Singapore shares will likely pick up where Wall Street had left off - a rally.

On Friday, China's central bank decided to introduce a surprise jolt of stimulus to jump-start its slowing economy while the European Central Bank signalled it would expand its quantitative easing programme in December.

For the sixth time since November, the People's Bank of China slashed its benchmark rate by 0.25 percentage point to 4.35 per cent, effective from Saturday. The reserve requirement ratio (RRR) has fallen by 50 basis points, taking it to 17.5 per cent for major banks.

The news sent the S&P 500 rallying 1.1 per cent, erasing its losses for this year. The Dow Jones Industrial Average climbed 0.9 per cent on Friday.

 

"The STI is likely to trade within the range of 3,000 to 3,170 on the back of latest Chinese stimulus measures. Further upside is expected if the FOMC (Federal Open Market Committee) decides not to hike rates this year, and China introduces more economic initiatives at the plenum," remisier Alvin Yong said.

Capital Economics chief Asia economist Mark Williams said he sees benchmark rates and the RRR being cut once more before the end of the year.

"This is a controlled easing cycle that underlines how China's policymakers, unlike many of their peers elsewhere, still have room for policy manoeuvre.

"Policy easing so far - both monetary and fiscal - does seem to be helping. Credit growth is picking up and government spending too.

"Fears that the economy was rapidly decelerating seem to have receded. Admittedly, we're still waiting for clear evidence of an economic turnaround - September's activity data still doesn't show any great improvement," Mr Williams said.

In Singapore, traders will also be paying attention to the results of Straits Times Index (STI) heavyweights.

OCBC will announce its results on Wednesday; Sembcorp Industries will release its results on Thursday; UOB and Global Logistic Properties' results are due on Friday.

On the local economic data front, Singapore's September industrial production data will be out today, while third-quarter unemployment data will be released on Thursday.

While banking counters have rebounded from a low in early October and remain fundamentally strong, the market may not have taken into account the slowdown in loan growth and moderated net interest margin hikes, DBS Group Research said.

Still, it maintained an overweight call on banks.

"We continue to prefer OCBC over UOB for its relatively healthier asset quality, potential traction from its greater China expansion and its wealth management platform," DBS said.

Meanwhile, China's leadership is likely to use its Five-Year Plan to signal that it is not wavering on the need for structural reform, Capital Economics economist Julian Evans-Pritchard said.

"Indeed, while many have argued that policymakers have been back-tracking recently, our view is that the growth slowdown and recent policy failures such as the bungled stock market rescue will, if anything, have increased the sense of urgency over the need for structural reform," he said.

The aspect of the plan that is likely to prove the most controversial is the growth target, Mr Evans-Pritchard said.

He believes China's growth is closer to the sustainable 5.5 per cent rate than the 6.5 per cent to 7 per cent usually cited.

A version of this article appeared in the print edition of The Straits Times on October 26, 2015, with the headline 'Investors await key US, China events'. Print Edition | Subscribe