Morning Market Commentary
- STI: -0.77% to 3167.1
- MSCI SE Asia: +0.00% to 870.6
- Hang Seng: -0.04% to 22656.9
- MSCI APxJ: +0.05% to 466.3
- Euro Stoxx 50: +0.35% to 2635.9
- S&P500: +1.69% to 1426.2
MARKET OUTLOOK:
By Ng Weiwen, Macro Analyst
Markets will kick off the new year with significant volatility today as patience is running thin over the 11th hour horse-trading frenzy and lack of a formal fiscal deal, especially with the sequester looming ahead and the debt ceiling already breached.
Has a fiscal deal been reached yet? Well, not exactly. The latest (at the time of this writing 0700hrs, SGP time) is that the House remains divided. Specifically, the Republicans (especially the conservatives)-who control the House- are resisting the vote on a bipartisan fiscal compromise (that cleared the Senate) on account of a lack of spending cuts (fundamental sticking point between the Democrats and Republicans).
Technically, the US is over the 'fiscal cliff' as no deal was reached by end of 2012 but Tuesday's New Year holiday provided some breathing space. The Friday rally in US equities (S&P 500 and DJIA) suggest that markets have priced in a fiscal deal of sorts- the lack of which will see Friday's gains wiped out at the blink of an eye.
While the US has breached its year-end debt limit - again, emergency measures could kick in (in the worse case scenario) and would keep the government afloat for around another two months. Nonetheless, we expect Congress to eventually raise the debt ceiling which it has regularly done in the past (though unlikely to be part of this narrow fiscal deal) to prevent the US from defaulting on its debt obligations. Taking a longer-term view, even if the US manage to avert the fiscal cliff (a boost for near-term growth prospects), it still has to address longer-term fiscal sustainability issues (though that is certainly not at the forefront of markets' minds now).
In Singapore, the STI might continue to retrace (pull back) from its 16-mth high, especially if there is no signs of substantial progress in fiscal cliff negotiations during Asian trading hours today. Price action ('dragonfly doji' last Fri) already hint at the possibility of a pause/retracement. Nonetheless, should a fiscal deal -even a more modest one- be hammered over the next few days, we could still see a strong impulse move up.
On the economic front, Singapore narrowly escaped a technical recession in 4Q12, registering growth of 1.2% for the whole of 2012 based on advance estimates. Looking ahead into 2013, we caution that modest growth (around 2%) and high inflation (domestically-driven) environment might be the new norm as the Singapore economy restructures and focuses on inclusive growth. If not for the tight labour market (which are already some signs of cracks), the economy would be at risk of stagflation.
The weakness in electronics manufacturing output as well as exports is likely to persist in the near term as (i) Singapore is not plugged into the tablet and smartphone value chain (as compared to South Korea and Taiwan) and (ii) global demand -as reflected in the SEMI book-to-bill ratio- remains tepid. While a stronger Singapore dollar might not be able to fully mitigate domestic drivers of inflation (still-elevated accommodation and private road transport costs), we expect MAS to continue to stand pat -maintaining a modest and gradual appreciation of the S$NEER, in a bid to anchor inflation expectations in view of induced capital inflows owing to quantitative easing by major G4 central banks, barring a significant slowdown in the global economy.
Amid a sluggish external demand, industries such as the construction sector as well as the marine and offshore engineering cluster (with order books relatively full) will be the main drivers of growth instead.
We are Overweight Singapore on account of the following:
(i) The Singapore equity market (MSCI SG: around 3.5% dividend yield) is likely to be a key beneficiary in the global search of yield amid large-scale asset purchases as well as monetary easing bias by G4 central banks, and
(ii) Ongoing multi-year construction boom will lend support to the economy (amid sluggish external demand) as the government seeks to ease supply-side infrastructure bottlenecks arising
Macro Data:
In Singapore, the economy expanded by 1.8% q-q seas adj annualised in 4Q12, reversing from a contraction of 6.3% in the preceding quarter. Full year 2012 growth stands at 1.2%, based on advance estimates, weighed down by weakness in the manufacturing sector.
In China, growth is gradually picking up with manufacturing activity continuing to expand in Dec. Specifically, the Markit manufacturing PMI rose 1pt m-m to 51.5 (a 19-month high) in Dec while the NBS manufacturing PMI stood at 50.6 (unchanged from the preceding month) . This momentum is likely to continue, especially on the back of infrastructure construction as well as proactive fiscal policies.
In South Korea, headline consumption rose 0.2% m-m nsa in Dec after two consecutive months of contraction. Core inflation -excluding food and energy prices- rose 0.2% m-m nsa in Dec after remaining flat for the preceding four months.
Regional Market Focus
Singapore
Thailand
Indonesia
Sri Lanka
Australia
Hong Kong
Morning Note
Company Highlights
CapitaCommercial Trust Management announced the resignation of Mr Liew Mun Leong as Deputy Chairman, Non-Independent Non-Executive Director and as Chairman of the Executive Committee (wef 1 January 2013) and Mr Richard Edward Hale will resign as Chairman and Non-Independent Non-Executive Director (wef 23 January 2013). (Closing price: S$1.685, -0.3%)
Mun Siong Engineering Limited announced that it has exercised the call option (as provided in the sale and purchase agreement dated 23 May 2011 entered between the Company and the vendors) to purchase the remaining shares in Wing Wah Industrial Services Pte. Ltd. (the “WW”) that it does not already own. This represents 20.0 per cent or 150,000 shares in the paid up share capital of WW. The purchase consideration is S$499,500.00 or S$3.33 each WW shares and is based on the sale and purchase agreement. (Closing price: S$-, -%)
Keppel Corporation Limited announced that its indirect wholly-owned subsidiary, FELS Tekform (Singapore) Pte Ltd, has on 30 November 2012, pursuant to a sale and purchase agreement dated 26 October 2012, completed the sale of 100% of the share capital of Tekform Building Systems (ZJG) Co., Ltd, a KCL indirect wholly-owned subsidiary, to Green Forist (Hong Kong) International Limited for a cash consideration of approximately CNY 8,400,000. The consideration was arrived at on a willing buyer willing seller basis taking into account, inter alia, the value of ZJG’s assets. The book value and net tangible asset value of ZJG were approximately CNY 1 as at 30 November 2012. Following the Sale, ZJG ceased to be a subsidiary of KCL. (Closing price: S$11.000, -%)
Source: PhillipCapital Research - 02 Jan 2013
Created by kimeng | Dec 29, 2022
Created by kimeng | Dec 29, 2022