China growth uncertainty drags markets

LACKING prominent drivers and weighed by uncertainty over China's growth, Asian markets ended broadly lower on Tuesday.

The International Monetary Fund (IMF) lowered its forecast for Chinese economic growth in 2019 to 6.2 per cent, down from 6.4 per cent, in its latest World Economic Outlook report released on Tuesday at its annual meeting in Bali.

Citing negative effects from the US and China's tit-for-tat tariffs, the IMF added: "The forecast does not incorporate the impact of further tariffs on Chinese and other imports threatened by the United States, but not yet implemented, due to uncertainty about their exact magnitude, timing, and potential retaliatory response."

The Nikkei 225 in Tokyo gave up 1.3 per cent to end at a three-week low of 23,469.39 in its fourth consecutive session of losses. Hong Kong's Hang Seng index fell for a sixth straight day, losing 0.11 per cent to end at 26,172.91. Australia's ASX 200 lost 1 per cent to close at 6,041.1.

Chinese markets were mixed, with the Shanghai Composite Index gaining 0.2 per cent on the day while the Shenzhen Composite Index lost 0.1 per cent. South Korean markets were closed for a holiday.

At home, the key Straits Times Index (STI) slipped for a fourth consecutive session, ending 14.85 points or 0.47 per cent lower at 3,166.6.

Turnover on the bourse was 1.7 billion shares, worth S$991.3 million in total, as losers beat gainers 199 to 170.

Nico Steel Holdings was the most actively traded counter, with 149.2 million shares changing hands. It ended at S$0.007 after gaining 0.1 Singapore cent or 16.7 per cent on the day.

Singapore Exchange (SGX) shares plunged 16 Singapore cents or 2.2 per cent in the largest one-day drop since July 30. They ended at S$7.08 after 5.7 million shares were traded.

Credit Suisse analyst Rikin Shah downgraded the stock to "neutral" from "outperform" ahead of SGX's Q1 results release on Oct 19, citing lower securities turnover, above average relative valuation and a lack of strong positive catalysts.

The Chinese yuan continued to slide even after the People's Bank of China on Sunday slashed the reserve ratio requirement to boost credit and fixed the yuan's mid-point for trading at 6.9019 per US dollar on Tuesday. The USD/CNY rate edged closer to a key psychological level of 7.0 as it reached 6.93, the highest level since August.

"We will probably see more rainy days ahead if the Chinese yuan continues its depreciation trajectory," said CMC Markets analyst Margaret Yang.

"Asian stock markets, including Hong Kong, Singapore and Korea, need China A-shares to stabilise before they can bottom out from the recent emerging markets rout."

IMF chief economist Maurice Obstfeld told Reuters on the sidelines of a news conference in Bali that he is not concerned about the Chinese government's ability to defend its currency, noting that the yuan has often quickly recovered from periods of volatility in recent years

He added that the steps taken to shore up economic growth amid trade tensions with the US are understandable, even though they would impact short-term growth and affect the yuan.

"They do have to balance those actions against the need to achieve a more stable financial sector, to achieve more deleveraging, and they have to exert better control over local government financing," said Mr Obstfeld.

However, FXTM chief market strategist Hussein Sayed said the US could take issue with China's strategies.

"The US administration may view the 9 per cent slump in the yuan over the past six months as a deliberate weakening to gain advantage in the ongoing trade war," he wrote in a Tuesday evening report.

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