SINGAPORE (Sept 2): The British pound dropped over 1% as newly minted Prime Minister Boris Johnson gained approval from Queen Elizabeth II to suspend Parliament, a move many say will devastate any attempts by members of Parliament to stop a no-deal Brexit. The FTSE 100 Index dropped as well.
“The rare sight of the stock market and the currency market coming to the same conclusion — namely that the UK is best avoided for now — throws into sharp relief investor sentiment towards a no-deal -Brexit,” writes Seema Shah, chief strategist at Principal Global Investors. “While turbulent markets will obviously create some attractive selective opportunities and relative value trades for stock pickers, the big international investors now look increasingly likely to decrease their exposure to the UK.”
As the Oct 31 deadline looms for the British exit from the European Union, Johnson, whom many call “Britain’s Donald Trump”, is being accused of perverting democracy and running Parliament roughshod into a disastrous no-deal scenario. However, Johnson insists that the suspension is needed to enact a “bold and ambitious legislative agenda”.
Although the current Parliament sitting is the longest in 400 years, Johnson will seek to suspend Parliament from the week of Sept 9 until mid-October, which would be alarmingly close to the Oct 31 Brexit deadline.
Han Tan, market analyst at FXTM, says the pace of the British pound sterling’s drop demonstrates yet again the currency’s susceptibility to Brexit fears, and that there is little conviction to ensure that the pound remains elevated.
“The jovialities at the G7 summit have given way to the harsh realities of the UK political arena as markets are reminded yet again that the threat of a no-deal Brexit remains alive and well,” he says, adding that the pound is expected to remain highly sensitive to Brexit fears while maintaining an easier path to the downside.
Phillip Wee, forex strategist at DBS Group Research, says, “A no-deal -Brexit is not the only threat to a weaker British pound below US$1.20. A hard Brexit is seen tipping the UK economy into recession and leading to debt rating downgrades and interest rate cuts.”
He adds that the Bank of England reckons deal or no deal, there is a one-in-three chance of a UK recession. “Real GDP growth has, for the first time since 2012, contracted 0.2% q-o-q in 2Q2019.”
Meanwhile, US President Donald Trump cannot seem to make up his mind whether he is in a trade war with China. At the G7 Summit on Aug 24 to 26, Trump took to Twitter to say that the US and China will “very shortly” resume trade talks after a weekend of escalating tension with Beijing.
“China called last night... said let’s get back to the table. So, we’ll be getting back to the table,” he says. However, just a few days before he tweeted what seems to be reconciliatory, on Aug 23, he had raised existing penalties on US$250 billion ($347 billion) in goods being imported from China to a 30% tax. He also levied an extra 5% tax — for a total of 15% — on another $300 billion in products that were set to be taxed starting Sept 1. The tariff hikes on the former goods are slated to go into effect on Oct 1.
Active stocks
On Aug 27, Oxley Holdings announced that earnings for 4QFY2019 dropped 81% y-o-y to $25.6 million while revenue was down 57% y-o-y to $146.3 million, on lower property sales. On the other hand, administrative costs increased 68% y-o-y to $26.2 million on higher headcount and related costs. The company’s bottom line was also weighed down by share of losses from joint ventures and associates.
As at June 30, the group had a total unbilled contract value of $3.9 billion. It plans to pay a final dividend of 0.68 cent per share for FY2019, bringing full-year dividend to one cent per share. The group says it is on track to reduce its borrowings and gearing ratio, and is in a good position to make the forthcoming bond repayment. Oxley shares closed on Aug 29 at 32 cents, up 5% for the day.
Also on Aug 27, Wing Tai Holdings, another property company, reported FY2019 earnings of $46.8 million, down 79% y-o-y. In FY2018, the company enjoyed a one-off gain from the sale of an industrial building in Hong Kong. Revenue for the year was down 10% y-o-y to $360.4 million, as the company booked lower development income. As at end-June, cash and cash equivalents stood at $217.3 million. Wing Tai says that it has recently been awarded a 99-year leasehold land parcel on Middle Road. It has also acquired a hotel in Japan in June. Wing Tai shares closed on Aug 29 at $2.06, down 0.48%.
On Aug 28, CITIC Envirotech said it had secured two build-own-transfer projects in China with a total investment value of RMB1.69 billion ($327 million). The first project will see the company undertake the design, construction and operation of water supply pipelines at an investment amount of RMB1.34 billion, to provide an additional water source for the population in Xichang City, located in China’s Sichuan Province. The project comes with a service concession of 30 years, inclusive of a two-year construction period. Shares in CITIC Envirotech closed at 30 cents on Aug 29, up 1.72%.
Mapletree Commercial Trust continued to enjoy steady trading interest this past week, as investors buy into the prospects of the Greater Southern Waterfront (GSW) master plan, where large swathes of property are slated for development along Singapore’s southern coastline in the coming five to 10 years. In an Aug 19 report, DBS Group Research analyst Derek Tan says he believes that office properties in the Alexandra precinct (Mapletree Business City Phase 1, PSA Building) and Harbourfront (Merrill Lynch Habourfront building), which are all held by MCT, will over time benefit from a wider pool of office tenants looking to relocate there, while the increased live-in population within the GSW will fuel the attractiveness of the properties to occupiers over time. MCT closed on Aug 29 at $2.24, up 2.28%.
The week ahead
On Sept 3, Singapore will be releasing its Purchasing Managers’ Index for August, which will help give some visibility on the local manufacturing sector. Other macroeconomic data out this coming week includes US trade balance numbers on Sept 4 and US initial jobless claims on Sept 5.
