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Headline inflation rebounds to 3.7% y-o-y
Singapore’s CPI-All Items inflation — or headline inflation — rebounded to 3.7% y-o-y in December 2023, slightly up from the 3.6% y-o-y print in November. Similarly, the Monetary Authority of Singapore (MAS) core inflation rebounded to 3.3% y-o-y in December, up from the 3.2% y-o-y reading in November.
Like in November, transport inflation saw the greatest rise across expenditure groups, with public transport inflation reaching 2.5% y-o-y and 2.6% m-o-m in December. Private transport costs, meanwhile, rose 5% y-o-y but fell 0.6% m-o-m last month.
Recreation and culture saw the second-greatest rise across expenditure groups last month, with the price of related goods growing 2% y-o-y but falling 0.2% m-o-m. Meanwhile, prices of related services grew 5.2% y-o-y and 0.2% m-o-m in December.
Holiday expenses grew 8.2% y-o-y and 4.3% m-o-m in December, climbing further from the 7.3% y-o-y and 0.7% m-o-m rise seen in November.
See also: ECB delivers landmark rate cut but few signals top
Food prices notched the third-greatest rise across expenditure groups last month, unchanged from November, albeit at a slower pace overall. Whereas food prices grew 4% y-o-y and 0.3% m-o-m in November, this slowed to a 3.7% y-o-y and 0.1% m-o-m rise last month.
Prices of most foods fell m-o-m in December, with prices of prepared meals mostly flat m-o-m.
According to MAS’s previous monetary policy statement, released in October 2023, MAS Core Inflation should be on a broad moderating trend in 2024. “Although crude oil prices have risen in recent months, global prices for most food commodities and intermediate and final goods should be tempered by favourable supply conditions. Meanwhile, unit labour costs are expected to rise slower next year alongside the gradually cooling labour market.”
See also: ECB holds rates and signals cuts are still some way off
MAS Core Inflation is projected to slow to an average of 2.5% to 3.5% in 2024. Excluding the impact of the increase in the GST rate in January, core inflation is forecasted at 1.5% to 2.5% for the year.
Meanwhile, CPI-All Items inflation will average between 3.% to 4.% in 2024. “Private transport inflation should moderate for the year as a whole, alongside the expected increase in Certificate of Entitlement (COE) quotas. Accommodation inflation should also ease as the supply of completed housing units expands,” says MAS.
Excluding the impact of the increase in the GST rate in January, headline inflation is forecasted to be 2.5% to 3.5%.
Starting in 2024, MAS will release quarterly monetary policy statements in January, April, July and October, up from biannually. The next MAS monetary policy statement will be released on Jan 29. — Jovi Ho
China slashes bank reserve ratio to fuel growth and markets
China will cut the reserve requirement ratio for banks in early February to unleash more money and help the economy, according to People’s Bank of China Governor Pan Gongsheng.
Pan said during a briefing with the press on Jan 24 that the 0.5 percentage-point cut to the ratio, or the amount of cash banks have to keep in reserve, on Feb 5 will provide RMB1 trillion ($188.4 billion) in long-term liquidity to the market.
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It is rare for the central bank governor to pre-empt a reserve requirement ratio (RRR) cut by revealing it in a press conference. Usually, the State Council, China’s cabinet, will hint at the move first, and then the PBOC will follow with an announcement via its website. But his remarks come amid mounting disappointment with the government’s response to ongoing economic concerns. Sentiment is dire, and Chinese and Hong Kong stocks have lost more than US$6 trillion ($8 trillion) in market value since a 2021 peak.
“Announcing an RRR cut in advance suggests no other effective tools available to stem the market rout,” said Shen Meng, managing director at Beijing-based Chanson & Co.
Still, market reaction has been mixed, with analysts seeing the move more to smooth liquidity ahead of the Chinese New Year holiday. Any broader impact on the economy may be limited.
After Pan spoke, the Hang Seng China Enterprises Index extended its gains to 4.7% on Jan 24. China’s 10-year government bond yield slipped one basis point to 2.49%, while the yuan changed little in both onshore and overseas trading.
Lowering the RRR allows banks to increase liquidity, enabling them to provide more customer loans and invest in additional bonds to stimulate economic growth. The central bank previously reduced the RRR twice in 2023, with the most recent cut occurring in September.
“An RRR cut helps sentiment in that the action seems more decisive,” said Kevin Net, head of Asian equities at Tocqueville Finance SA. “But some investors may use this as an exit opportunity if there is such short-term market rebound, unless there are more policies to address structural issues than those with the property market.”
Pan said the central bank would have more room this year to support the economy through monetary policy as the Federal Reserve moves away from raising interest rates. He added that Fed policy has shown signs of a pivot recently, and the policy divergence between the world’s two largest economies will narrow in 2024.
“This will expand space for China’s monetary policy operations,” Pan told reporters, adding that the central bank continues to monitor the Fed. — Bloomberg
Jack Ma boosts Alibaba with stock purchase
Alibaba’s stock experienced a significant boost, marking its largest gain in six months, as billionaire co-founder Jack Ma’s purchase provided a lift during internal challenges and a stock market downturn.
China’s e-commerce pioneer gained as much as 6.7% in Hong Kong after climbing 8% in New York. Ma, the once-outspoken billionaire who retreated from public view after Beijing clamped down in 2020, bought about US$50 million ($66 million) of stock last quarter, a person familiar with the situation said. Chairman Joseph Tsai — Ma’s longtime confidante — also separately bought about US$150 million shares in his first purchase since 2017.
The revelation emerged as doubts persist about China’s post-Covid-19 turnaround, helping trigger a market rout that hammered swathes of the world’s number two economy. Alibaba lost more than 40% of its value over the past year, as the company that once defined Chinese e-commerce lost market share to PDD Holdings Inc and underwent a management reshuffle. The US rally on Jan 23 coincided with a 5% gain in a key gauge of US-listed Chinese stocks after Bloomberg reported Beijing was readying a US$278 billion market rescue package.
Alibaba’s woes and the surprise exit of former CEO Daniel Zhang spurred speculation that Ma himself may get more directly involved with his company. In recent months, the co-founder has stepped up public activity, though it remains far from when he was a regular on the global conference circuit.
“This could be iconic, given Jack Ma’s image, and it could boost market confidence in the short term. And it should be the first purchase by Jack Ma since eight years ago,” said Willer Chen, an analyst at Forsyth Barr Asia. “But for Alibaba, the major question is still how the company will compete with PDD and regain its growth.” — Bloomberg
India tops Hong Kong to be world’s fourth-largest stock market
India’s stock market surpasses Hong Kong’s for the first time, highlighting the South Asian nation’s attractive growth prospects and investor-friendly policy reforms.
The combined value of shares listed on Indian exchanges reached US$4.33 trillion as of Jan 22’s close, versus US$4.29 trillion for Hong Kong, according to data compiled by Bloomberg.
That makes India the fourth-biggest equity market globally. Its stock market capitalisation crossed US$4 trillion ($5.7 trillion) for the first time on Dec 5, with about half of that coming in the past four years.
India’s equities surge with a growing retail investor base and robust corporate earnings, positioning the country as an attractive alternative to China. Its stable political environment and consumption-driven economy make it a fast-growing destination for global investors and companies.
“India has all the right ingredients to set the growth momentum further,” said Ashish Gupta, chief investment officer at Axis Mutual Fund in Mumbai.
The relentless rally in Indian stocks has coincided with a historic slump in Hong Kong, where some of China’s most influential and innovative firms are listed. Beijing’s stringent anti-Covid-19 curbs, regulatory crackdowns on corporations, a property-sector crisis and geopolitical tensions with the West have all combined to erode China’s appeal as the world’s growth engine.
They have also triggered an equities rout that’s now reaching epic proportions, with the total market value of Chinese and Hong Kong stocks having tumbled by more than US$6 trillion since their peaks in 2021. New listings have dried up in Hong Kong, with the Asian financial hub losing its status as one of the world’s busiest venues for initial public offerings.
However, some strategists expect a turnaround. UBS Group AG sees Chinese stocks outperforming Indian peers in 2024 as battered valuations in the former suggest significant upside potential once sentiment turns, while the latter is at “fairly extreme levels,” according to a November report.
Bernstein expects the Chinese market to recover and recommends taking profits on Indian stocks, which it sees as expensive, according to a note earlier this month. — Bloomberg
