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STI a sea of red as yuan plunges

This article is more than 12 months old

Sell-off could continue this week with markets jittery on worries over China's response to new tariffs announced by the US

It was a bad start to the nation's birthday week for the Singapore market as the Chinese yuan fell sharply and regional markets reacted to the US-China trade war escalation.

The Straits Times Index (STI) plunged 66.6 points, or 2.04 per cent, in yesterday's trading to 3,194.51.

A day after US President Donald Trump announced new tariffs on Chinese imports, the yuan breached a key level of 7 against the US dollar, which FXTM chief market strategist Hussein Sayed thinks could hint at China's strategy for managing the tariffs' impact.

"The PBOC (People's Bank of China) has spent hundreds of billions of dollars over the past couple of years to prevent their currency from breaching this key level, but now that doesn't seem to be the case," he wrote in an afternoon note.

"In fact, the currency tool may be very effective as it significantly offsets the impact of US tariffs. If the Chinese currency falls by another 8 per cent from the current level, the 10 per cent tariffs paid by US importers will be offset by the renminbi's weakness."

"PBOC weaponises the renminbi... the boost to China's export sector from currency depreciation is worth attracting the ire of the Trump," said Capital Economics in a note.

Turnover on the local bourse was 1.2 billion securities worth $1.39 billion, which worked out to an average unit price of $1.16.

Losers outnumbered gainers 378 to 111, or seven securities down for every two up.

The STI was a sea of red amid heavy trading for many of its constituents, including Yangzijiang Shipbuilding Holdings, which led active counters. It lost four cents or 2.82 per cent to close at $1.38, after 54.1 million shares were traded.

On the index, only Ascendas Real estate investment trust (Reit) ended in the black, adding one cent or 0.33 per cent on a volume of 13.7 million units to close at $3.06.

ACTIVE

Reits made up a considerable portion of active counters, ending mostly lower although seven managed to eke out some small gains.

Mapletree North Asia Commercial Trust retreated six cents or 4.32 per cent to $1.33 with 26.1 million units changing hands.

The Reit's properties are situated in prime locations in Hong Kong, China and Japan, noted Singapore Exchange market strategist Geoff Howie.

Mr Howie added that Reits have been Singapore's second strongest sector, after technology, for the first seven months of 2019.

He observed that the iEdge S-Reit Index has seen only one-third of the STI's declines over the first three sessions in August. And while Reits generated flat returns in July, institutions managed to book some profits with a net outflow of $209 million.

DBS Group Holdings took a hit as they went ex-dividend, ending at $25.29 after retreating 96 cents or 3.66 per cent.

OCBC Bank and United Overseas Bank also ended the day lower.

The five Jardine-linked counters were the biggest drag on the index, led by Jardine Matheson Holdings, with a 5.7 per cent drop to US$57.38 (S$80).

Yesterday's sell-down could continue in the week ahead, said Oanda senior market analyst Edward Moya.

"Financial markets are likely to remain jittery this week awaiting incremental updates on China's response to Trump's latest trade escalation and for further clarity from Fed officials on how many more rate cuts are on the table," he wrote in a morning note.

"The punch bowl is getting refilled but last week's FOMC (Federal Open Market Committee) decision dampened expectations for an easing cycle. Corporate earnings are also starting to come in softer than expected and we could see investors run to the sidelines."

For full listings of SGX prices, go to https://www2.sgx.com

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