The only positive observation that can be made from the technical charts is that short-term indicators are near the low end of their range and at levels that normally trigger a rebound in prices.
On the flip side, 10-year US treasury yield (10Y) are somewhat overbought and due for a pullback. Even then, the 10Y main trend is unlikely to reverse its uptrend as its directional movement indicators, which are slower than short-term oscillators, suggest a trending phase for the time being. ADX itself is at 41; even if this indicator retreats, the trending phase may continue as the ADX reading is high.
The trend of the Straits Times Index (STI) is less clear as its ADX is on the low side at 13, an indication of a ranging market. This suggests that support at 3,150 — a level that almost coincides with the close of 3,147 on Oct 4 — is likely to hold. Short-term oscillators are at the low end of their range and at a level where they usually rebound, possibly to 3,226. Traders are able to trade the STI via the STI ETF.
Although the Hang Seng Index (HSI) feels a lot weaker than the STI, this may have to do more with expectations than its actual movement. It is indeed weaker than the STI year to date. In the past 12 months, the STI has risen by a meagre 5.5%. In the same period, the HSI is down 1.5%.
During 1Q2023, the HSI outperformed the STI, probably on expectations of a rebound in stock prices and economic activity. These expectations have faded during the year and the HSI has been hard-pressed to move much above 17,600 at a time when market watchers expected it to challenge 18,000.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
As a result, both H-shares and A-shares have similarly languished. The Shanghai Composite Index is unchanged year to date while the Shenzhen Stock Exchange Composite Index is down 9% in the same period.
The Lion-OCBC Securities China Leaders ETF (priced in Singapore dollars) which replicates the movement of the Hang Seng Stock Connect China 80 Index, is at a support at $1.44.
At the moment, its 50- and 100-day moving averages are drawing together while moving downwards. If they draw apart while still in a declining trend, the China Leaders ETF could break its support at $1.44 indicating a re-test of its one-year low of $1.306.
See also: Continued steps towards a Chinese New Year rally
On the fundamental front, the IMF which released its World Economic Outlook on Oct 4, says if central banks were to focus solely on bringing inflation down quickly, they would tighten even further and reduce the time required to bring inflation rates back to targets by two years but at the cost of a sharper economic slowdown.
“When policymakers choose policies to take account of the trade-offs among the objectives of inflation close to target, output at potential, and smooth policy rate paths (helping manage financial stability concerns), a scenario for a representative advanced economy facing today’s inflation circumstances suggests that it is likely to take about three to four years for inflation and expectations to converge back to the central bank’s target,” the IMF report says. It looks increasingly like central banks have opted for option 2 which implies higher for longer.
The Asean + 3 Macroeconomic Research Office (AMRO) says the overall balance of risks is tilted to the downside, with a gloomier global growth outlook being one of the major risks in the coming quarters.
“While the re-opening of China had initially provided a much-needed boost to global demand, it will unlikely be sufficient to offset the impact of the tighter financial conditions in major economies on global growth, which will weigh heavily on Singapore’s manufacturing exports,” AMRO says.
High prices are likely to be a challenge for Singapore, according to AMRO. “A sharp rise in commodity prices looms as a key external risk amid heightening geopolitical tensions and the El Nino weather condition, while car ownership fees, accommodation costs, wage pressure, and GST hikes warrant monitoring on the domestic front,” AMRO says. On the financial front, spikes in capital flow volatility are a key risk for Singapore, it adds.
