Dec 21, 2015

    Wall St slide may hurt Asian stocks

    WALL Street's 2.1 per cent plunge last Friday in the wake of the oil price rout could send Asian bourses including Singapore sliding further this short trading week.

    Caution is expected to rule ahead of the Christmas holiday on Friday. Traders are hoping for a Santa Claus rally, even though it looks increasingly remote.

    The Dow Industrials plunged 2.1 per cent to its lowest closing level in about two months, as a rally spurred by the Federal Reserve's move to raise interest rates fizzled out and a strengthening dollar and oil glut fears sent oil prices skidding. The S&P 500 dropped 1.8 per cent, while the Nasdaq Composite fell 1.6 per cent.

    "There are growing doubts over whether the timing of the rate hike is correct," remisier Alvin Yong said. "Let's hope (today) won't be Black Monday for the Straits Times Index (STI). In the best case scenario, we may see a 20-point drop from current levels. In the worst case scenario, a 50-point drop."

    The STI fell 0.29 per cent to 2,852.84, though it managed to eke out a 0.6 per cent gain for the week.

    Crude oil lost 0.6 per cent to US$34.73 a barrel, while Brent shed 0.5 per cent to US$36.88 a barrel. US crude has lost 17 per cent over the past three weeks, its biggest percentage decline over that period in nearly year.

    Oil-related counters such as Keppel Corp and Sembcorp Marine are expected to come under further pressure this week.

    According to RHB, Ezion Holdings is one of many casualties in the depressed oil & gas sector, where markets are pricing such stocks as though oil prices will stay under US$40 a barrel for the long term.

    But RHB maintains a buy call on Ezion, noting that the offshore marine logistics firm has entered into an agreement with a Chinese state-owned enterprise to support windpower installation projects in China.

    "This opens up another avenue of growth for the company, whose assets and management skills are well-suited for wind-farm installation projects," RHB said.

    Fears are growing that the Fed fear is starting to tighten in an economy that is starting to weaken, he said.

    The flash Markit US Services Purchasing Managers' Index for December fell to 53.7 - the lowest in 12 months - compared with the final November data of 56.1.

    Investors are eyeing United States gross domestic product and core personal consumption expenditures data due tomorrow as well as new home sales and personal income, spending data out Wednesday for signs on the health of the US economy.

    Clues on the health of Singapore's economy will likely come from Consumer Price Index data due Wednesday and industrial production data due Thursday.

    According to Chinese media reports, a top Chinese planning body's think tank has recommended that interest rates and banks' reserve requirement ratio be cut further to boost flagging growth in the world's second-largest economy. Beijing has been struggling to reach its growth target of around 7 per cent this year, despite a raft of policy easing steps in recent months.

    "Now this will be the Christmas gift everybody is waiting for," Mr Yong said. "There's strong justification to do it based on recent poor import and export data."

    Major trading partners in the Asia-Pacific region including Singapore, would see the largest negative impact to growth in the face of a Chinese slowdown, according to Fitch Ratings.

    But the strength of Singapore's sovereign balance sheet would likely be a powerful buffer against such a shock and any ensuing volatility.