Yuan worries sink ST Index 1.06%

THE local stock market continued to be plagued by weak sentiment on Wednesday as the Straits Times Index recorded its third straight fall this week, albeit in slightly improved volume.

Softness in Hong Kong because of a sharp fall in the Chinese yuan was blamed for the weakness here and possibly in the futures market where the Dow futures suffered a 100-point loss. The Hang Seng ended one per cent lower while Europe opened in the red across all markets.

Regional bourses were rattled in the morning when the People's Bank of China (PBOC) unexpectedly cut its daily fixing for the yuan to the lowest level since April 2011, weaker than the yuan's last onshore closing level. The currency fell 0.6 per cent in Hong Kong's freely traded market as well as in Shanghai, with both exchange rates dropping to their weakest levels since at least March 2011.

Here, the STI's 29.96-point, or 1.06 per cent, loss at 2,804.27 brought its fall for the year to 78 points, or 2.7 per cent, this after it dropped 14.3 per cent in 2015. Turnover was 1.2 billion units worth S$1 billion compared to S$852 million on Monday and S$895 million on Tuesday.

"2016 is proving to be a continuation of 2015 with no change," said a dealer, by now punch-drunk from the hits the local market has taken for many months now.

Bloomberg Business quoted Nizam Idris, head of foreign exchange and fixed-income strategy at Macquarie Bank in Singapore, as saying the market will be confused by what Beijing is trying to signal with the recent market intervention and (Wednesday's) yuan fixing.

Among the top volume was SingPost, which crashed S$0.10, or 6.2 per cent, to S$1.51 on volume of 31.4 million. There were no fresh corporate developments to explain the slide, though the company is the focus of a corporate governance special audit. SingPost was at 4.40pm queried by the Singapore Exchange (SGX).

There was a new volume leader in the shape of Forise International, which was formerly called Great Group Holdings. The stock ended unchanged at S$0.021 on volume of 74.2 million, replacing Luzho Bio-Chem which lost S$0.003 at S$0.044 on volume of 44 million.

Schroders in its January Economic and Strategy Viewpoint said that for 2016, it expects emerging markets to continue to struggle. "A stronger US dollar and persistent weakness in China will keep pressure on commodity prices and the emerging economies," said Schroders. "Investors will also be deterred by downgrades and an increase in defaults."

The investment house also said that political uncertainty will be a factor. "It is a US presidential election year and the UK may vote on EU membership, factors which will create uncertainty and weigh on investment decisions as firms and households delay decisions until the uncertainty lifts. Growth will be temporarily weaker, or in the event of a Brexit or Trump presidency, the uncertainty will be just beginning."

Coutts' investment strategist Rashmi Sadhwani, in a Jan 5 report titled "New Year, Old Rout", recommended investors with a long-term horizon stay the course rather than try to time the market and end up "selling-low".

"Brave short-term traders may consider buying on weakness. We continue to see good value and investment opportunities for clients in 2016," said Ms Sadhwani. "We expect the global economy to improve, albeit gradually. Periods of market sell-offs, such as the current situation, provide value opportunities where there is a mismatch between sentiment and fundamentals."

On China she said that the data is not as bad as people think and that she expects further monetary stimulus from the PBOC.