Experts say Singapore won’t be spared from market turmoil

The turmoil in the Asian markets last week is just the beginning of worse to come, said economists and analysts, and Singapore is unlikely to be spared in the weeks ahead.

There were jitters, even signs of panic, in Asian bourses the end of last week, with the rise in United States jobless claims — the highest in five years — spooking market sentiment. The Straits Times Index (STI) dropped 51.84 points or 2 per cent last Friday to 2574.21, its lowest close since October 2006.

Economists told TODAY that they are concerned by the blood-letting on the bourses, the result of various forces converging to contribute to fears of a prolonged global slowdown. None of them gave an indication of when things would pick up.

“There is a substantial degree of fear factor in the markets. Risk aversion dominates the market and everyone is getting worried despite the oil prices going down,” said DBS economist Irvin Seah.

“A few months ago, when oil prices shot up, it was interpreted as bad news for the economy. This time round, even when oil prices come down, it was also interpreted as a negative thing because of slowing global demand,” he added.

The manufacturing sector would probably bear the brunt of the cyclical decline. Such woes may eventually spread to export-oriented sectors as well as the transport services sector.

Sentiment-driven sectors like property and financial services may also start to feel the pain. There would be some pockets of retrenchment in these sectors, probably towards the end of the year, but nothing similar to what occurred in 2001, added Mr Seah.

A small open economy like Singapore’s will feel more acute pain as compared to an economy with a larger domestic market, said economists. Political instability in Asia — the violent clashes in Thailand and the abrupt resignation of Japan Prime Minister Yasuo Fukuda — only breeds more uncertainty for many companies here.

Credit Suisse, in a recent note, advised investors to avoid Malaysia and Thailand as the anticipated returns do not justify the risks.

Mr Song Seng Wun, regional economist at CIMB, said: “There will be more downward pressure on earnings growth, and we in Singapore will see fewer people passing through Changi Airport. Being a hub, we ride on overseas growth and people coming through. There could be lower growth than what the government projected.”

The recent selldown in the STI is more likely due to macroeconomic indicators pointing to slower economic activity and indicators of consumer confidence painting a cautious outlook.

“With the rest of the world showing very wobbly growth, perhaps higher inflation and tightening monetary policies around the world are taking their toll,” Mr Song said.

In the short term, the STI is unlikely to show signs of recovery and is expected to continue to decline. “For the week ahead, take cover, it’s going to be rough. There might be some technical rebounds, but they are unlikely to be sustained,” said an analyst at a local brokerage. “Fundamentals are way too messed up, and we don’t really need indicators to tell us things are going to get worse.”

Vice-president of group wealth management at OCBC Bank, Mr Vasu Menon, said that investors would need to brace themselves for a longer period of volatile stock markets. “Although commodity prices have pulled back and we see inflation abating, it is clear that there are still more bearish times ahead and investors need to tread cautiously in the short term,” he said.

Investors who are still seeking for places to park their money can consider funds that adopt market neutral strategies, said Mr Menon.

Economists are warning of tougher times ahead for the man on the street, but the reality has yet to hit most wage-earners.

“My hunch is that most Singaporeans are not feeling the pain yet. The turnout (at recent travel and consumer electronics fairs) has been fantastic despite headline growth coming off and the stock market crashing,” said DBS’s Mr Seah.

Yet, pressures on the employment scene are building up, say economists. The labour market tends to respond to the economic growth cycle after two quarters, and that means there might be some layoffs by the end of the year.

On a decidedly pessimistic note, he predicted that bonuses will shrink, and fresh graduates may find difficulty getting good jobs. “Workers who intend to switch jobs may find it difficult to find attractive openings as compared to the last two years.”

Source : Today – 8 Sep 2008

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