Jan 11, 2016

    Weak trading expected after Dow dip

    SINGAPORE stocks are expected to start the week soft, following Wall Street's poor performance last Friday despite a strong United States jobs report.

    Local investors will also be cautious ahead of the corporate earnings season that kicks off this week.

    "The STI is likely to enter another weak and cautious trading week amid the poor performance of the Dow and the Chinese markets," remisier Alvin Yong said, referring to the Straits Times Index.

    In New York, the Dow Jones Industrial Average fell 1 per cent last Friday, despite US non-farm payrolls increasing 292,000 last month, and the unemployment rate holding steady at 5 per cent.

    Traders say the gloom is likely to carry over this week, as US companies also start to report earnings for the last quarter of 2015.

    "While the current situation gives rise to the opportunity to bargain-hunt for stocks, especially blue chips, the lack of any strong global positive news could hinder a meaningful rebound on the STI," said Mr Yong.

    The Straits Times Index ended the first week of the year down 4.6 per cent.

    Wall Street had its worst first five-day performance of a year in history, with the Dow losing 6.2 per cent.

    This was in the wake of the Chinese yuan falling to its lowest level in nearly five years, exacerbating worries over China's economy. Oil prices sank to 12-year lows.

    Panic selling by Chinese investors on earlier expectations that a six-month ban authorities placed on selling shares would end did not help, nor did a circuit breaker to prevent a free fall in Chinese stocks.

    Instead, the automated trading halt had made the sell-off worse as investors bailed out even harder when it looked set to kick in.

    But Chinese stocks stabilised on Friday after the authorities guided the yuan higher and suspended the circuit breaker mechanism.

    The Shanghai bourse also issued a circular on Saturday to limit the share sell-off rate for large shareholders, to pre-empt massive dumping of shares on the market. A six-month share sales ban imposed last year on listed companies' major shareholders expired last Friday.

    According to the latest circular, major shareholders with stakes at 5 per cent or above will be barred from selling more than 1 per cent of a listed company's share capital through the stock exchange's centralist bidding system every three months.

    Traders are now eyeing China's exports, imports and trade balance data to be released on Wednesday, as well as its new yuan loans to the business sector after last week's mayhem, which left the Shanghai Composite Index down 10 per cent - its largest weekly decline since August last year.

    But Bank of Singapore chief economist Richard Jerram said global markets appear to have "over-reacted" to the turmoil in Chinese equities. "For many years, swings in the Chinese equity market have had little connection with the real economy and the equity market crash in the second half of last year has had limited economic impact," he added.

    Meanwhile, China's foreign exchange reserves fell by US$107.9 billion (S$155.7 billion) last month to US$3.33 trillion as of the end of last year, the lowest level in more than three years, according to central bank data.

    Nevertheless, China still holds the world's largest foreign exchange reserves, despite the sharpest monthly fall on record, partly due to the US Federal Reserve starting to raise rates last month.

    The State Administration of Foreign Exchange said the Chinese economy's fundamentals are sound and its financial system is "stable and healthy".

    Meanwhile, the earnings season starts with Singapore Press Holdings announcing its first quarter 2016 results and Qian Hu Corp releasing its fourth quarter 2015 results tomorrow.

    Maybank Kim Eng, in its 2016 outlook on Singapore firms, expects more corporate restructuring, privatisations or takeovers in the property and healthcare sectors, and especially in offshore and marine which it flagged as "a major Achilles heel" last year.