S'pore firms in China remain confident despite stock rout

An electronic board showing Shanghai Stock Exchange information at a brokerage house in Beijing yesterday. Fears that the Chinese economy is headed for a hard landing triggered a bloodbath in global equity markets this week, prompting some analysts t
An electronic board showing Shanghai Stock Exchange information at a brokerage house in Beijing yesterday. Fears that the Chinese economy is headed for a hard landing triggered a bloodbath in global equity markets this week, prompting some analysts to warn of more volatility ahead. China is Singapore's top trading partner and export destination, with total trade between the two countries amounting to $121.5 billion last year.PHOTO: REUTERS

Pockets of opportunities for long-term investors, says property group; some pushing ahead with expansion

Singapore companies doing business in China say they still see strong prospects there despite the stock market turmoil.

Fears that the Chinese economy is headed for a hard landing have triggered a bloodbath in global equity markets this week, prompting some analysts to warn of more volatility ahead. However, others have also pointed to a disconnect between China's capital markets and its broader economy.

China is Singapore's top trading partner and export destination, with total trade between the two countries amounting to $121.5 billion last year.

Despite the flood of sombre news, Futuristic Store Fixtures chief executive David Low said the company still sees strong prospects in China. The company, which designs store fixtures for global retail brands, has recorded sales growth in China of 20 to 30 per cent this year compared with last year.

"So far, our customers have not given feedback that they want to slow store openings in China," Mr Low said. "The brands we're dealing with have mid- to long-term plans in China and can weather ups and downs... In fact, in a slower economy, it's less challenging to find good store locations with the right rental. We're also not dealing with luxury brands, which have been hit badly in China."

China makes up about 20 per cent of the company's sales, a share Mr Low expects will increase in the coming years. The company has a factory in Kunshan, an hour's drive from Shanghai.

Ms Elaine Lek, the head of the global brand team at tableware firm Luzerne, said that while sales to China's hospitality sector eased slightly in the last quarter, the company has not been significantly hit overall.

"We haven't had any cancellations in orders... Our top line has been largely comparable to last year," she added.

The firm intends to push ahead with plans to expand its factory in Dehua, in China's Fujian province, and also intends to keep investing in machinery and automation.

"We have been in China for a long time and we're in it for the long haul," said Ms Lek. About 30 to 40 per cent of the company's sales come from the country.

Mainboard-listed property group Mapletree said pockets of opportunities still exist in China, "especially for long-term investors like ourselves".

A spokesman told The Straits Times that China's residential and retail property markets are facing headwinds, but the company has been in China since 2005 and seen through "natural fluctuations that are part of the economic cycle".

"We have also been diversifying our geographical risks to balance our exposure in Asia, and this has led us to venture into new markets such as the United States, Australia and Europe," the spokesman said.

OCBC Bank chief financial officer Darren Tan said the bank "believes China still has considerable potential in its transition to an upper middle income economy", though slower growth can be expected as the economy adjusts.

Ms Wee Wei Min, the bank's global head of treasury advisory, said clients are showing renewed interest in hedging their foreign exchange exposures amid heightened volatility.

"Chinese clients who have Singapore entities that have receivables in yuan and liabilities in US dollars may now be prompted to seriously consider hedging their foreign exchange exposures," she added.

The collapse of the equity bubble "tells us little about what is going on in China's economy", said Mr Mark Williams, chief Asia economist at Capital Economics, in a research note. "Recent economic data from China have been mixed rather than unrelentingly negative, as many recent headlines might suggest.

"The upshot is that we see growth picking up soon. That probably won't translate into a turnaround in China's equity markets but, given the lack of a link between the markets and the economy and the lack of global exposure to China's markets, it's not clear why that should matter to most investors."

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A version of this article appeared in the print edition of The Straits Times on August 27, 2015, with the headline 'S'pore firms in China remain confident despite stock rout'. Print Edition | Subscribe