Aug 17, 2015

    Markets regain footing, face uncertain path

    WHILE regional markets calmed down after the shock of the yuan devaluation last week, the long-term impact is likely to be one of increased uncertainty among investors.

    After three rounds of devaluation last week that sent the yuan down by 3 per cent, the People's Bank of China (PBOC) raised the rate on Friday in a bid to stabilise the currency, sending the message that it will intervene if volatility becomes too excessive.

    By the weekend, Asian markets had regained their composure after the scare over the yuan devaluation. The MSCI Asia Pacific ex-Japan lost 2.7 per cent last week, but the Shanghai Composite was up 0.27 per cent on Friday.

    Singapore's benchmark Straits Times Index also rose for the second straight day on Friday by 0.73 per cent to 3,114.25, trimming its five-day drop to 2.58 per cent.

    "For now, at least, the markets have absorbed the direct impact from PBOC's adjustments. But this event could be the black swan that will hold sentiments back just as investors are getting ready for a September rate hike," said CMC Markets analyst Nicholas Teo.

    Remisier Desmond Leong is also not optimistic, saying: "Two weeks ago, the STI already went below the trend line since 2011, which is an indicator we use to track the market troughs. The two-day rebound was likely just technical, and with both China and Singapore showing weak economic figures, we may see the index testing the 3,000 level in the near term."

    Earlier this month, China reported a surprise drop of 8.3 per cent in last month's exports, which many saw as a reason for the yuan devaluation. In Singapore, the Ministry of Trade and Industry narrowed the official growth forecast for this year to 2 to 2.5 per cent, down from the previous 2 to 4 per cent range, to reflect the global headwinds.

    Local investors have found little cheer from the recent season of corporate results.

    Among the sectors that are finding it tough going, offshore and marine companies may yet see the worst of it, with the United States crude benchmark West Texas Intermediate plunging to a six-year low last week.

    As oil prices show fresh signs of weakening, Ezion Holdings on Friday reported a 36.3 per cent decline in its Q2 net profit to US$28.96 million (S$40.7 million). This followed year-on-year profit declines reported by both Keppel Corp and Sembcorp Marine earlier.

    All three stocks remain in a downward slide. Over the past month, shares of Keppel Corp lost 10 per cent, Sembcorp Marine dropped 7 per cent and Ezion pared 23 per cent.

    Blue-chip property developer City Developments also reported lower second-quarter profit on Thursday, which dropped 3.2 per cent to $133.5 million. The announcement came after CDL's shares hit a new 52-week low last week at $8.80, as investors sold down amid the persistent uncertainties surrounding the local property market.

    "There are currently more than 6,122 private residential units that have been launched and remain unsold, and potentially 12,139 units that are yet to be launched in Singapore. We expect the excess supply of units in the market to continue," PhillipCapital said in a recent note.

    The quarter ahead is offering few reasons for investors to be confident, Mr Teo cautioned.

    "The corporate earnings reported so far broadly showed that the bottom line remained healthy as a result of effective financial management, which is good to have. But top-line growth - actual business growth - has not picked up, and investors are apprehensive about that," he said.