Mar 07, 2016

    Slowing China may trigger off volatility

    REGIONAL markets enjoyed a good run in the past week but more volatility may happen as attention turns back to slowing China, according to analysts.

    China announced a record fiscal deficit over the weekend while pledging to step up fiscal stimulus, particularly for supply side reforms which include tax and fee cuts for businesses.

    The world's second-largest economy has been grappling with a slowdown, rising debt and capital outflows.

    Officials have set a weaker growth target for the year - and reassured markets yesterday the economy will "absolutely" not suffer a hard landing.

    Premier Li Keqiang on Saturday unveiled a 6.5 to 7 per cent expansion goal, down from the 7 per cent last year. It is the first time Beijing has offered a range since 1995.

    China also dropped its trade target in a move that highlighted the degree of uncertainty over global growth.

    All eyes will remain on China and Europe in the coming week, IG market strategist Bernard Aw told The Straits Times.

    "With the official forecasts out from the opening day of the China's National People's Congress, investors will look for more details out from the annual meetings," he said.

    Meanwhile, the European Central Bank is under pressure to ease more at its interest rate decision on Thursday following the weak inflation and purchasing managers' index readings.

    "Expectations for them to be more aggressive are building so there is a risk that we may be disappointed if the announced measures are not up to expectations," said Mr Aw. "Markets may turn choppy as a result."

    Risk appetite made a comeback across Asian markets last week, with Singapore racking up the best performance in the region.

    The Straits Times Index on Friday grew 49.39 points, or 1.77 per cent, to 2,837, capping a robust week with an impressive weekly gain of 187.62 points or 7.08 per cent - its best showing since October. This was in line with gains in the Singapore dollar, which rose to its strongest in four months.

    That oil prices are also up from 12-year lows to US$36 was a big boost as well, sparking talk the worst of crude prices could be over.

    At home, oil and gas-related plays, from blue chips to pennies, were kept busy as optimism ran high.

    Offshore services provider Ezra Holdings was in active play through the week. It closed 0.4 cent or 5.2 per cent higher at 8.1 cents on Friday, advancing 32.8 per cent for the week.

    Commodity trading giant Noble Group rose sharply on Friday - up four cents or 10.5 per cent to 42 cents - to erase its losses for the year so far and reach its highest since December.

    The counter is set to be removed from the STI on March 21 following the latest quarterly review, with CapitaLand Commercial Trust to take its place.

    "Leaving the STI may see less liquidity for the commodity firm, lending more volatility to its price," said Mr Aw. He added that while Singapore is catching up on a region-wide recovery, the relief could be unsustainable.

    "There is no solid improvement in fundamentals such as better economic growth," he noted. "We may not see a sustainable rally as a result."