SINGAPORE (Oct 7): The bleak economic outlook could be realised sooner rather than later as negative factors emerge.
This week, data from Automatic Data Processing showed that US businesses had added a modest 135,000 jobs in September. The weak data further suggests that the US economy is not as robust as previously thought. ADP also lowered its estimate of new jobs created in August to 157,000 from 195,000 previously. ADP is a global provider of human resources management software and services, and its data is seen as a bellwether of hiring trends.
More worryingly, even before the US-China tensions can be resolved, the US has opened a new front in the trading war. On Oct 2, the US announced that it intended to impose tariffs on US$7.5 billion ($10.34 billion) worth of European goods after the World Trade Organization ruled that Airbus had received illegal aid from the European Union. Nevertheless, the EU is on track to win their WTO case accusing the European MNC’s US counterpart, The Boeing Co, of receiving clandestine support from the US via defence and space contracts. This will no doubt “inspire tit-for-tat” tariffs against the US at some stage, says Jeffrey Halley, OANDA senior market analyst for Asia-Pacific.
On top of that, the downward revisions to the services purchasing managers index in Europe will dampen market sentiment, despite being above contraction levels. The French PMI was revised to 51.1 in September from 51.6 in August, while the German PMI was cut to 51.4 from 52.5 in the same period. In the eurozone, the services PMI fell to 51.6 from 52 previously.
In Singapore, the IHS Markit Singapore PMI fell to 48.3 in September from 48.7 in August, signalling the sharpest rate of contraction in more than seven years. “The question for investors now is how far the data is going to slide,” Stephen Innes, Asia-Pacific market strategist at AxiTrader, writes in an emailed market commentary on Oct 3.
Such precarious times have led Schroders to ponder over the possibility of several economic scenarios. The likeliest risk, the fund house believes, is a global recession followed by a global trade war. The former scenario reflects a synchronised slowdown in global activity, while the latter refers to a higher US tariff rate of 50%, as well as US tariffs imposed on European and Japanese automotive vehicles.
“Overall we see the balance of probabilities as being skewed towards weaker growth than our baseline forecast. Stagflationary potential outcomes (those in which inflation is higher, but growth is lower) are the most likely,” Schroders chief economist and strategist Keith Wade writes in an October report.
For now, the trade conflict between the US and China is taking a “toll” on the outlook for the global economy. Global growth is expected to be 2.6% this year and 2.4% next year, according to Schroders. These figures are lower than the previous forecasts of 2.8% and 2.6% respectively. Should global growth fall to that level in 2020, the global economy would be similar to 2008, just before the recession of 2009, it says.
Shareholding changes and strategic review
On the corporate front, LionGold Corp, one of the three companies at the centre of the 2013 penny stock crash saga, is now under the control of new shareholders: Yao Liang and Yao Yuan. The Chinese investors hold 51% and 49%, respectively, in an entity called Yaoo Capital that was used to invest in LionGold. At a special general meeting on Sept 30, shareholders approved a series of resolutions, including the issuance of 23 billion new shares at 0.1 cent each to the two.
In a circular dated Dec 28 last year, LionGold CEO Raymond Tan said Yao Liang was his former client when he was a partner at law firm Robert Wang & Woo. Tan introduced the Yaos to this deal. According to LionGold, the Yaos believe that “there is untapped and discoverable potential” in the Ballarat project in Victoria, Australia, which the company owns.
“They intend to assess the situation post-completion of the subscription agreement with a view to strengthening the core business activity of the group. They also intend to look at other areas of growth with a view to enhancing shareholders’ values,” the company added. LionGold shares closed on Oct 3 at 0.1 cent.
China Sunsine Chemical Holdings, a producer of speciality rubber chemicals and rubber accelerators, has received in-principle approval from the Singapore Exchange for the proposed share split of one ordinary share into two. The proposed exercise will see an additional 491.7 million shares being issued, barring any changes in the number of issued shares until its completion.
China Sunsine says the share split will increase its market liquidity — owing to the reduction in share price — and broaden the base of shareholders. This, in turn, will improve the accessibility of investment in the company for new investors. The proposed share split will be subject to shareholders’ approval at an extraordinary general meeting to be convened. China Sunsine Chemical Holdings shares closed on Oct 3 at $1.10, up 1.9%.
Meanwhile, Y Ventures Group has appointed Evolve Capital Asia as its financial adviser to conduct a strategic review of the e-commerce company. The latter will review the company’s current investments, mergers and acquisitions (M&A) and joint ventures. Y Ventures says there is no assurance that any transaction will materialise from the strategic review.
The appointment of a financial adviser came after Y Ventures placed out 24.7 million new shares at 8.12 cents each to raise $2 million last month. The company has entered into subscription agreements with nine investors for the allotment and issue of the new shares.
The group says some $1 million of the net proceeds of the proposed placement will be used for expansion of its business through potential M&A, joint ventures, strategic collaborations and investments. The remaining $976,892 will be used to fund its general working capital requirements. Since the start of last week, Y Ventures has been among the most actively traded counters. It rose from 9.1 cents on Sept 30 to 11.9 cents on Oct 3, up 30.8%.
The week ahead
On Oct 4, the US is due to release its nonfarm payrolls data — the same day US Federal Reserve chairman Jerome Powell is expected to give his speech. The Federal Open Market Committee meeting minutes are expected to be released on Oct 9. The following day, the European Central Bank will publish its monetary policy meeting accounts.
