SINGAPORE (June 17): US President Donald Trump is not letting up on his threats to hit China with a new set of tariffs as talks between the two economic giants show scant signs of progress. China, on the other hand, did not give a clear indication if President Xi Jinping will meet Trump at the G20 meeting on June 28 and 29 in Osaka, Japan.
Trump added further uncertainties to the trade talks. At a press conference on June 12, he declared that there was no deadline on when the talks should resume, other than “what’s up here”, pointing to his head.
With this deteriorating economic outlook, oil prices and tech stocks dropped, while the US dollar strengthened. “We expect that the longer the trade uncertainty persists, the higher the probability of risk-off sentiments settling into the markets. Trade pessimism continues to be the main source of bearishness in the markets,” writes OCBC economists in a June 13 report.
China appears willing to let the renminbi weaken to levels previously thought unacceptable as the US escalates its tariff threats ahead of the G20 summit, raising the spectre of renewed capital flight.
Yi Gang, governor of the People’s Bank of China (PBOC), countered widespread speculation that Beijing regards RMB7 to the dollar as a line in the sand. “I don’t think, along the mathematical scale, any number is more important than the other number,” he told Bloomberg.
The central bank chief also hinted at openness to larger swings in the renminbi, which is now allowed to move only 2% above or below the daily midpoint set by the PBOC. “A little bit of flexibility of renminbi is good for the Chinese economy,” he said.
Yi’s comments prompted the currency on June 7 to soften offshore to a seven-month low of 6.96 against the greenback from around 6.93. China guiding the renminbi lower will give its exporters more leeway to cut prices in dollar terms, making their products more attractive to foreign buyers and mitigating the blow from the tariffs.
The trade war and global slowdown are combining to trigger a sharp drawdown in profits for US MNCs. Companies that derive more than half of their sales outside the US are expected to see a 9.3% slump in 2Q earnings as the reporting season looms about a month away, according to FactSet, which estimates the Standard & Poor’s 500 Index component companies to report a 2.3% decline.
Lower Singapore GDP forecast
Unsurprisingly, the global economic worries are hitting Singapore directly. Private sector economists have downgraded Singapore’s 2019 GDP growth from 2.5% to 2.1%, according to the Monetary Authority of Singapore’s Survey of Professional Forecasters for June. The last survey was in March.
The economists now expect Singapore’s manufacturing sector to shrink 0.2% between 2018 and 2019, from an earlier estimate of 2% growth. Similarly, for wholesale and retail trade, they now expect a dip of 0.3%, from a modest growth of 1.5%. Non-oil domestic exports (NODX) are now seen to be down 2.1% versus growth of 1.1%. There are a few other relative bright spots, though. Construction and finance and insurance are seen to grow at 3.2% and 3.8% respectively.
“Given that Singapore is a trade-oriented
economy, the chief silver lining to the dark clouds forming at this point would be the hope for some form of resolution in the ongoing US-China trade spat into the next year, and should it materialise, could lead the return of global confidence and fan growth tailwinds for export-oriented economies,” writes UOB economist Barnabas Gan in his June 12 report.
The Straits Times Index closed at 3,214.95 points on June 13, up 0.22% for the day. Year to date, the index is up 4.76%.
Active stocks
This past week, First Ship Lease (FSL) Trust was among the more actively traded counters. On June 7, the business trust’s sponsor, FSL Holdings, offered 5.85 cents each for all the units of the shipping trust it does not own — a premium of 33% over the last transacted price of 4.4 cents on June 6, before the offer was announced. The sponsor does not intend to delist the trust but reserves the right to assess its options if the free float falls below the 10% threshold. FSL Trust closed on June 13 at 5.8 cents, unchanged for the day.
Shares in Venture Corp, which have been beaten down by nearly a fifth since late April over US-China trade war worries, have rebounded slightly following an upgraded call by Maybank Kim Eng on June 10 from “hold” to “buy”, although with an unchanged price target of $19.74. Analyst Lai Gene Lih suggests that investors wait till the company’s 2Q results report later in July, to better ascertain Venture’s prospects from its diversified customer base of more than 100. Lai notes that Venture can benefit from both new orders from new customers and a higher proportion of orders from existing customers over other contract manufacturers. “Venture has had a good record of delivering both,” says Lai. Venture shares closed on June 13 at $16.55, up 2.54%.
On June 10, Kingsmen Creatives announced a licensing agreement with Nasdaq-listed Hasbro to create, build and operate a new edutainment concept incorporating a suite of Hasbro brands into family entertainment centre attractions across the region. Brands under Hasbro’s stable include Play-Doh, Lite-Brite and Tinkertoy. Under terms of the agreement, Kingsmen will co-conceptualise, build and run the various centres, with the first to be open by 2021. Kingsmen shares closed on June 13 at 53 cents, down 0.93%.
Shares in City Developments enjoyed a lift after the property giant launched another takeover bid for its separately listed hotel subsidiary Millennium & Copthorne Hotels. The offer of 685 pence was a 37% premium over M&C’s last closing price of 500 pence on June 6, before the offer was announced on June 7. CDL already holds a 65.2% stake in M&C. CDL shares closed on June 13 at $9.42, up 2.5%.
RHB has initiated coverage on Oxley Holdings with a “buy” call and price target of 41 cents. “Concerns over its gearing level are overdone,” write analysts Jarick Seet and Lim Cai Ling in their June 13 report. The debt level is poised to be reduced with proceeds from sale of existing assets such as Chevron House. “Sturdy profits from its overseas and local projects will also start to flow in, and shareholders could be rewarded by special dividends,” they add. Oxley shares closed on June 13 at 32 cents, up 3.23%.
The week ahead
On June 17, Singapore will be releasing the NODX figures for May. The numbers will give further indication of the extent of the slowdown, following April’s 10% y-o-y drop. In March, NODX was down 11.7% y-o-y, sharply reversing the 4.8% y-o-y growth posted in February.
