BT: Tough going for Singapore bourse

BT article here.

Published October 7, 2008

TOUGH GOING FOR SINGAPORE BOURSE

SINGAPORE shares crashed yesterday, in line with global markets, and more pain appears in store for investors, notwithstanding the odd technical rebound or two.

The economic slowdown and a weakening Singapore dollar look set to serve up a double whammy for Singapore stocks. The strongest official warning so far that the Singapore economy is headed for tough times came over the weekend, when Finance Minister Tharman Shanmugaratnam said that the economy is expected to slow, not just one or two quarters, but for several quarters as the sub-prime meltdown evolves into an economic crisis.

This sets the stage for two major and potentially market-moving announcements this week. On Friday, the government will announce flash GDP estimates for the third quarter. Many private sector economists are expecting a technical recession (two consecutive quarters of GDP declines) starting in the third quarter, and some are warning of a full-blown recession ahead, with year-on-year quarterly contractions.

With economists slashing their estimates of Singapore's 2008 growth to well below 4 per cent, all eyes are now on the government cutting its full-year economic growth forecast of 4-5 per cent.

Yesterday's sharp drop in stock prices is one indication that the market is starting to price in a prolonged economic slowdown, and further downgrades are likely. Corporate profits will increasingly be at risk.

The Q3 reporting season, which will begin shortly, will provide the first hint of the expected deterioration in earnings, although easing fuel and commodities prices may provide some relief.

The Q3 GDP flash estimates will also provide a backdrop for another key announcement on the same day - the Monetary Authority of Singapore's (MAS) twice-yearly policy statement. With growth replacing inflation as the main concern, the MAS is expected to signal a slower pace of appreciation for the Singapore dollar against its major counterparts.

The weakening of the Sing dollar will aid the competitiveness of Singapore exporters and help cushion the blow of slowing demand in key markets. It will also be welcomed by local companies which have seen their overseas earnings pared down by conversion losses when the Sing dollar was gaining.

But the weakening Sing dollar could be negative for stocks. When the Sing dollar appreciation story was in play over the last one year or so, there were significant foreign capital inflows into the Singapore economy. A lot of the inflows found their way into local stocks, as foreign investors anticipated currency as well as capital gains.

Now, with the expected Sing dollar weakening, the reverse will be true, leaving the stock market facing the prospects of capital outflows. So it could be some tough months ahead for the Singapore stock market as well.



Image credit here.

Post Date: 7 Oct 08