Singapore stocks head for biggest drop in two years on China

[SINGAPORE] Singapore stocks tumbled, with the benchmark Straits Times Index heading for its biggest decline since June 2013 amid concerns China's currency devaluation will hurt bank earnings and slow economic growth.

The Straits Times Index sank 2.5 per cent to 3,075.27 as of 10:37 am in Singapore, the most in the Asia-Pacific region. DBS Group Holdings Ltd, Oversea-Chinese Banking Corp and United Overseas Bank Ltd, the nation's three key lenders, slumped at least 2.9 per cent, among the eight biggest decliners on the benchmark measure.

Singapore banks have been making inroads into China and the People's Bank of China's move to devalue its currency will hurt their earnings, according to Daiwa Securities Group Inc. The yuan was headed for its biggest two-day drop in 21 years after the PBOC's reference rate was cut to the weakest level since 2012.

"Their exposure to China provides additional headwinds for the Singapore banks," David Lum, an analyst at Daiwa Securities in Singapore, said by phone. "Their base is still Singapore and Asean, which is also not doing well." The Straits Times Index has lost 8.6 per cent this year, the worst-performing stock gauge in the developed world after Greece.

The Greater China region made up 30 per cent of pretax profit at DBS in the first half, the most among the three Singapore lenders. The region accounted for about a fifth of OCBC's pretax profit and about 11 per cent of UOB's.

"It's mainly a sentiment issue here from China," Hans Goetti, head of investment for Asia, at Banque Internationale a Luxembourg SA. The profitability of Singapore banks will probably be limited as "China has slowed down a a lot already," he said.

Singapore slashed the upper end of its growth forecast for 2015 on Tuesday after the economy shrank last quarter, signaling a softened outlook as China's slowing growth takes its toll on the city-state's export-dependent economy.

In neighbouring Malaysia, concerns are mounting as the currency trades at a 17-year low in an economy that's probably growing at the slowest pace in more than two years, according to a Bloomberg survey before a report Thursday.

CapitaLand Ltd, Singapore's biggest developer with almost half of its assets under management in China, dropped 3.1 per cent, while rival City Developments Ltd lost 2.3 per cent.

BLOOMBERG