Singapore stocks head for biggest drop in two years on China

PHOTO: SPH

AUG 12, 201511:06 AM

[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

    

China strengthens hold over oil market as price maker

China's growing ability to buy and sell millions of barrels of crude oil on the Asian physical market in a matter of minutes through its main trading firms has given China so much clout that other traders are often forced to follow its agreed prices. 

PHOTO: REUTERS

AUG 11, 20158:14 PM

[SINGAPORE] China's growing ability to buy and sell millions of barrels of crude oil on the Asian physical market in a matter of minutes through its main trading firms has given China so much clout that other traders are often forced to follow its agreed prices.

Leading Chinese oil traders have cornered the market on several occasions since October last year. Early this month, Chinaoil, the trading arm of PetroChina, bought 5 million barrels of crude in just 30 minutes through Asia's main price-finding mechanism organised by Platts, part of McGraw Hill Financial Inc.

Market power is shifting towards big consumers, with oil output at record highs and global demand slowing. China's main oil traders Unipec and Chinaoil have been able to cherry-pick the best offers and take advantage of cheap oil to build strategic reserves.

"China's view of supply security is now increasingly a question of becoming a price maker and being involved in the entire supply chain globally," said Michal Meidan, director of consultancy China Matters.

This year, China is challenging the United States as the world's No 1 crude buyer, with weaker oil prices lowering the cost of building China's strategic petroleum reserves. China bought nearly 11 per cent more crude in the first seven months of 2015 from a year earlier.

For China, the cost of importing roughly 200 million barrels of crude a month has fallen to US$10 billion at current prices around US$50 a barrel, from US$23 billion when prices were at US$115 a barrel last summer.

Nowhere has China's move from price taker to maker been more obvious than in daily physical crude oil trading.

Unipec, the trading unit of Sinopec Corp, and Chinaoil often dominate daily trading, surpassing volumes dealt by Western majors.

"Get out of the way when the train is running," said a trader with an Asian refiner.

"Little guys like us can get run over easily."

Riding on China's growth of the past decade, which has not only seen it become a top crude importer but also a large exporter of refined products, Sinopec and PetroChina have evolved from being passive oil importers to sophisticated traders of crude oil and refined fuels.

Since the second half of 2014, both firms saw oil traders ascend to top management, replacing executives of either planning or refinery manager background, company sources said.

Sinopec and PetroChina do not comment on trade-related matters.

The huge volumes exchanged by China's two major traders are straining Asia's benchmark price-finding mechanism in the physical oil market, the Dubai Market-on-Close (MoC) by Platts.

In a process called "the window" by many traders, the soaring activity of these traders has often led little space for other participants to trade in the oil price-making process. "The concern which I and a lot of others have is that the Dubai market does not reflect the true market price of Middle East crude with this kind of action," said Oystein Berentsen, managing director of crude oil with Singapore-based Strong Petroleum.

Additionally, the government is slowly deregulating its import market, granting more licenses to independent refiners to buy overseas crude, further boosting demand not just for physical crude from the Middle East, but also for the main international crude futures benchmarks Brent and West Texas Intermediate (WTI).

"Granting of crude import licenses is one step towards deregulating China's oil industry. This also helps boost demand for lighter grades," said Singapore-based brokerage Phillip Futures this week in a note to clients. "Thus, it could help support both WTI and Brent, which are of the lighter grades."

REUTERS

    

Gold hits 3-week high as investors assess China currency move  

Gold rose more than one per cent on Tuesday as the dollar reversed gains and European stocks fell and investors assessed the impact of China's move to devalue its currency and prop up its economy. 

PHOTO: BLOOMBERG

AUG 11, 20158:29 PM

[LONDON] Gold rose more than one per cent on Tuesday as the dollar reversed gains and European stocks fell and investors assessed the impact of China's move to devalue its currency and prop up its economy.

Beijing allowed the yuan to fall to its lowest level in nearly three years after a run of poor economic data, with the central bank describing the move as a "one-off depreciation" of nearly 2 per cent.

China's rate decision triggered a sharp but short-lived retreat in gold to a session low of US$1,093.25 an ounce.

Spot prices rebounded to a three-week high of US$1,119 before trading up 0.4 per cent at US$1,108.90 an ounce by 1153 GMT.

"Gold is benefiting from fears that this is a new round of 'currency war'," Macquarie analyst Matthew Turner said, adding that the move increases uncertainties and risks about the global economy, which tends to be good for gold.

"Gold's best moment this year came in the first few months when we saw various FX swings, lots of different central banks cutting interest rates or intervening in their monetary policy, so probably there is some element of that which has helped the rally from Monday continue a bit," Mr Turner said.

The metal had gained around one per cent on Monday on dollar weakness after comments from Federal Reserve officials raised uncertainty about a September rate hike.

Friday's lower-than-forecast US nonfarm payrolls in July also raised uncertainty whether US rates will rise next month.

US gold for December delivery also rose 0.4 per cent to US$1,109.00 an ounce.

Analysts, however, do not expect China's yuan devaluation move to bolster gold's value in the medium to long term, as this would have to be followed by a wider round of global devaluation race between currencies.

The euro hit an 11-day high against the dollar on Tuesday, while European shares retreated.

Atlanta Fed President Dennis Lockhart said on Monday that a decision to raise rates should come soon. He said he was "very disposed" to a rate increase at the September policy meeting, but stressed that subsequent increases should be gradual.

Investors have cut their exposure to non-interest-bearing bullion and raised their bets on the dollar on expectations that the Fed would lift rates this year for the first time since 2006. The metal lost nearly 7 per cent in July, when it also touched its cheapest since 2010 at US$1,077.

Spot platinum rose 0.4 per cent to US$986.10 an ounce and palladium gained 1.2 per cent to US$614.70. Silver was up 0.1 per cent at US$15.22 an ounce.

REUTERS

      

Oil prices drop as China allows yuan to fall

Crude oil prices fell again on Wednesday as China allowed its currency to fall sharply for a second day, triggering concerns over the country's economic health just as oil production hit multi-year highs. 

PHOTO: BLOOMBERG

AUG 12, 201511:15 AM

[SINGAPORE] Crude oil prices fell again on Wednesday as China allowed its currency to fall sharply for a second day, triggering concerns over the country's economic health just as oil production hit multi-year highs.

Brent futures initially edged up before continuing their slide of the last two months as China's yuan hit a four-year low, slipping further a day after authorities devalued the yuan in a move to support its struggling economy and which sparked fears of a global currency war.

A lower yuan erodes Chinese purchasing power for dollar-denominated imports like oil, potentially hitting fuel demand.

Benchmark Brent futures were down 31 cents at US$48.87 per barrel at 0251 GMT. US crude was trading at US$43.02 per barrel, down 6 cents from Tuesday when it marked it lowest settlement since March 2009. "The Chinese yuan continues to weaken for the second day which could suggest further weakening of oil prices,"Singapore-based brokerage Phillip Futures said on Wednesday. "On top of this, Opec's August 2015 report shows slightly increasing production." The Organization of the Petroleum Exporting Countries (Opec) said on Tuesday that its members continued to boost supplies. According to secondary sources cited by the report, Opec produced 31.51 million barrels per day (bpd) in July - 1.5 million bpd more than its 30-million-bpd target.

Opec also raised its forecast of oil supplies from non-member countries in 2015, a sign that crude's price collapse is taking longer than expected to hit US shale drillers and other competing sources, and the group forecast no extra demand for its crude oil this year.

REUTERS

    

Ringgit extends slide as yuan devaluation adds to Malaysia woes

Malaysia's ringgit weakened the most in two months as the yuan's devaluation put further pressure on Asia's worst-performing currency reeling from a slump in oil prices and a political scandal. 

PHOTO: AFP

AUG 12, 201510:38 AM

[KUALA LUMPUR] Malaysia's ringgit weakened the most in two months as the yuan's devaluation put further pressure on Asia's worst-performing currency reeling from a slump in oil prices and a political scandal.

The ringgit fell early Wednesday to within 0.1 per cent of 4 to the dollar, a level last seen in August 1998. It was down 0.9 per cent at 3.9945 as of 9:43 am in Kuala Lumpur, near a low for the day of 3.9975, according to prices from local banks compiled by Bloomberg.

The People's Bank of China cut its daily reference rate by a record 1.9 per cent on Tuesday, triggering the yuan's biggest one-day loss in two decades. Vietnam widened the dong's trading band on Wednesday, adding to speculation policy makers will reignite a currency war to weaken their exchange rates and revive faltering exports. Brent crude prices that are less than half what they were from a 2014 peak are hurting government revenue for Malaysia as a net oil exporter.

"The lower oil price and devalued yuan should be negative for the ringgit," said Masashi Murata, vice president at Brown Brothers Harriman & Co in Tokyo. "A weaker ringgit is negative for Malaysian domestic demand as it boosts inflation expectations and money outflow." Malaysia's sovereign bonds declined Wednesday, with the 10-year yield rising two basis points to 4.21 per cent, according to prices from Bursa Malaysia. That's the highest level for a benchmark of that maturity since January.

A government report on Thursday may show Malaysia's second- quarter economic growth slowed to 4.5 per cent from 5.6 per cent in the previous three months, according to the median estimate in a Bloomberg survey. That would be the slowest pace since early 2013.

As the currency weakened this year amid the political scandal linked to state investment company 1Malaysia Development Bhd that's embroiled Prime Minister Najib Razak, global investors cut holdings of the nations debt and equities just as the US prepares to raise interest rates.

BLOOMBERG

    

Some in BOJ fret China's slowdown may hurt exports: July minutes

A few Bank of Japan policymakers warned that the country's exports may be hit if China's economy slowed further, minutes of the central bank's July policy meeting showed on Wednesday. 

PHOTO: REUTERS

AUG 12, 20158:28 AM

[TOKYO] A few Bank of Japan policymakers warned that the country's exports may be hit if China's economy slowed further, minutes of the central bank's July policy meeting showed on Wednesday.

The BOJ's nine members shared the view that overseas economies, particularly advanced economies, would continue to recover moderately, according to the minutes.

But they also said emerging economies would continue to lack momentum for the time being due largely to slowing Chinese demand, the minutes showed.

At the July meeting, the BOJ trimmed its economic growth forecast but held off on offering fresh stimulus, anticipating that a pick-up in consumption would nudge inflation towards its two per cent target.

REUTERS

Yuan devaluation exposes European exporters

European exporters glimpsed the possible progressive erosion of lucrative benefits from the weak euro on Tuesday, as China's surprise devaluation made foreign goods more expensive for its consumers and corporate customers. 

PHOTO: REUTERS

AUG 12, 20157:02 AM

[FRANKFURT] European exporters glimpsed the possible progressive erosion of lucrative benefits from the weak euro on Tuesday, as China's surprise devaluation made foreign goods more expensive for its consumers and corporate customers.

Shares fell in makers of cars, luxury goods and consumer products, wiping 140 billion euros (S$216.8 billion) off the value of the FTSEurofirst 300 index, as the spectre loomed of a new round of currency wars.

European companies from L'Oreal to Siemens have benefited from the euro's weakness making their products cheaper abroad and lifting the value of sales in other currencies, while Chinese growth has masked weakness elsewhere.

China is the second-biggest buyer of EU goods after the United States, accounting for 14 per cent of exports from the trade bloc last year, according to Eurostat.

The Chinese central bank's 2 per cent cut in its official dollar-to-yuan guidance rate sparked fears of more such moves to come and gave support to concerns the world's second-biggest economy would miss its 7 per cent growth target for this year. "The biggest impact is what this says about Chinese growth,"said Liberum consumer goods analyst Robert Waldschmidt. "When you look at the actual companies, clearly anyone that's exporting to China is going to have a harder time." Sectors with the highest exposure are basic resources, personal and household goods, technology, chemicals and autos.

The European basic resources index, already down 16 per cent in the past three months, fell a further 4.1 per cent; the autos index fell 4.1 per cent and the personal and household goods index slid 2.4 per cent.

The exporter-heavy German blue-chip DAX fell 2.7 per cent, with automakers Daimler, BMW and Volkswagen leading the way as China's car industry association reported the biggest monthly drop in vehicle sales in 2-1/2 years, even before any devaluation impact. "The rotation out of exporters to more domestically focused stocks and sectors, in Italy or Spain for example, has more to go," said Dennis Rose, a strategist at Barclays in London.

Evercore autos analyst Arndt Ellinghorst said the 2 per cent devaluation would not be material for German carmakers, with zero impact this year thanks to hedging and an operating profit impact of around 1 per cent next year.

But Juergen Hackenberg, head of European equities at German asset manager Union Investment, said: "A continual weakening would have clear effects on companies strong in exports." Perhaps more significant than currency translation effects is the signal sent by China of its determination to support its export-dependent industrial sector, where it is building national champions to challenge Western rivals, analysts say. "The timing certainly aligns with current efforts to further prop up growth in non-financial sectors," wrote IHS Global Insight China economist Brian Jackson.

China has already produced global telecoms equipment maker Huawei and has created the world's biggest rail conglomerate, CRRC, by merging two trainmakers.

Analyst David Vos of Barclays said cheaper export prices would not always benefit Chinese companies as often they did not yet have comparable technology to that of Western rivals.

But he saw large infrastructure, power transmission and coal power generation and makers of low-end mining equipment, such as crushers and grinders, as sectors where China was competitive. "Move up a little bit further and you can start thinking about medical equipment, where we have been very cautious about the Chinese domestic landscape for Philips and Siemens, but this increases the attractiveness for domestic players to start to export," he said.

State-sponsored Huawei is already neck and neck with Sweden's Ericsson in telecoms equipment and analyst Sylvain Fabre at Gartner said the devaluation could further strengthen its hand and that of peer ZTE.

But he noted Huawei had long ago abandoned the cut-throat pricing strategy it used to conquer world markets and that in any case international tenders were made in dollars. "Huawei has been disciplined on price in recent years, and even ZTE is not in total price-war mode. There are lots of things that come into play, not just currency," he said. "What is true is that the Chinese vendors will have the ability to cut price a bit more if they so choose."

REUTERS

    

Eyes on US economy, Fed likely unmoved by China devaluation

China's currency devaluation on Tuesday is unlikely to distract the US Federal Reserve from a domestic economy that appears increasingly ready for higher interest rates. 

PHOTO: AFP

AUG 12, 20157:00 AM

[NEW YORK] China's currency devaluation on Tuesday is unlikely to distract the US Federal Reserve from a domestic economy that appears increasingly ready for higher interest rates.

The US central bank will hope that the surprise move is not the beginning of a series of competitive devaluations that could send the dollar much higher than its slight rise on Tuesday, weakening already soft US inflation, economists and Fed watchers said.

But as it considers whether to lift rates as soon as next month, the Fed's key focus is the growing durability of the US labour market. Fed policymakers could even see China's devaluation as boosting global growth if it helps shore up a stumbling Chinese economy that has hit world commodity prices and financial markets. "I don't see this affecting the Fed decision unless it develops into something that roils markets substantially," said Peter Hooper, chief economist at Deutsche Bank Securities and a former Fed economist. "It adds a little more drag to the economy via net exports and puts a slight damper on consumer prices, but not enough to alter the course of the US economy or labor market significantly," he said.

The People's Bank of China set the yuan's peg to the dollar about two per cent lower, calling it a "one-off depreciation" that helps align the currency with others that have slipped as the Fed has prepared to tighten monetary policy.

Fed officials say the dollar's year-long rise, alongside tumbling oil prices and weaker economies abroad, has put downward pressure on stubbornly low domestic prices and has played at least some role in delaying rates "liftoff." Stanley Fischer, the Fed's vice chair, said on Monday the global disinflationary trend "bothers" the Fed. But "primarily the US economy depends on itself - not only, but to a considerable extent," he added in a television interview.

US central bankers could raise rates for the first time in nearly a decade at a Sept 16-17 meeting.

Atlanta Fed President Dennis Lockhart and other policymakers say that between now and then, data on US jobs growth, inflation, and retail sales will inform that decision, suggesting only a big shock from abroad could throw things off.

Analysts say it is more likely that the path of subsequent rate rises would hinge more on inflation and the dollar, which could react strongly to further competitive devaluations from China in response to worsening data there.

Roberto Perli, partner at economic research firm Cornerstone Macro, said Tuesday's devaluation should appreciate the dollar by 0.4 per cent given the yuan's trade-weighted effect. "The Fed is likely to think that today's move reduces the risks to the US economy, just like any other foreign easing move does," he wrote to clients. "This should at least partly offset the stronger dollar and leave the odds of a liftoff later this year, probably in September, little changed for now."

REUTERS

    

US in wait-and-see mode on China's yuan devaluation 

The United States warned China on Tuesday to push on with reforms to its exchange rate policy, saying it was too early to judge its devaluation of the yuan. 

PHOTO: AFP

AUG 12, 20157:05 AM

[WASHINGTON] The United States warned China on Tuesday to push on with reforms to its exchange rate policy, saying it was too early to judge its devaluation of the yuan.

In the first reaction from Washington to the People's Bank of China's nearly 2.0 per cent cut in the yuan versus the dollar, the US Treasury pressed for a more flexible exchange rate that reflects the market.

"While it is too early to judge the full implications of the change in the PBOC reference rate, China has indicated that the changes announced today are another step in its move to a more market-determined exchange rate," the Treasury said.

"Any reversal in reforms would be a troubling development." US officials have long accused the Chinese government of keeping the currency, also known as the renminbi, undervalued to make Chinese exports cheaper and gain an unfair trade advantage.

The massive US goods trade deficit with China exceeded US$31 billion in June. The sharp depreciation of the yuan Tuesday could widen that politically sensitive gap.

"China's move puts the US administration into an awkward and difficult contortion," said Eswar Prasad, a trade professor at Cornell University and a senior fellow at the Brookings Institution.

Prasad, a former International Monetary Fund official who once headed its China division, noted that a falling yuan and a rising bilateral US trade deficit with China will draw sharper criticism from Congress over China's currency policies.

"But the administration has no economic basis for criticizing China's move towards greater exchange rate flexibility. Indeed, preventing the yuan from depreciating further would run counter to US and IMF calls for a more market-determined exchange rate," he said.

Nicholas Lardy, a China expert at the Peterson Institute for International Economics, said it was "too soon to tell whether or not we could be entering into a period of sustained devaluation of the renminbi that would have a significant impact" on US exports to the country's second-largest trading partner.

Robert Kahn, of the Council on Foreign Relations, said the direct effects of the devaluation on US exports would be small.

"But if this is the start of a broader trend to trying devalue, then it would be problematic because it would be an attempt by China to gain a competitive advantage vis-a-vis its main trading partners," he said.

The depreciation came as the US political season entered high gear in the run-up to the 2016 election.

"Beijing has handed critics new ammunition at the worst possible time: in the run-up to a presidential campaign," said Kevin Carmichael of the Centre for International Governance Innovation.

"Are they serious about this being a one-time move? Many will doubt that, especially in the Congress," Carmichael said.

Real-estate magnate Donald Trump, one of the 17 candidates in the Republican presidential nomination race, came out swinging shortly after the Chinese news.

"They're doing a big cut in the yuan, and that's going to be devastating for us," said the tycoon, a long-time critic of China's currency policy, in a CNN interview.

Experts generally appeared to agree that the devaluation at least was in part aimed at helping China's slowing economy, while some experts saw in it a Beijing lure to encourage the IMF to include the yuan in its reserve currency basket.

The IMF said last week that the yuan was not ready to be included along with the dollar, euro, yen and pound in its "special drawing rights" basket, its accounting currency.

Derek Scissors, at the American Enterprise Institute, said the devaluation was an attempt to have the renminbi behave as a normal currency.

"The People's Bank is trying to convince the IMF that the renminbi can be a reserve currency," he said.

AFP

Update: China cuts yuan rate against US dollar for second day

China cut the value of the yuan against the dollar for a second consecutive day Wednesday, trimming the reference rate by 1.62 per cent, the central bank said. 

PHOTO: AFP

AUG 12, 201510:25 AM

[SHANGHAI] China cut the value of the yuan against the dollar for a second consecutive day Wednesday, trimming the reference rate by 1.62 per cent, the central bank said.

The daily fix that sets the value of the Chinese currency against the greenback was lowered to 6.3306 yuan, from 6.2298 on Tuesday, the People's Bank of China said in a statement on its website, a day after the unit was devalued by nearly two per cent.

Tuesday's devaluation - the biggest since 2005 when China unpegged the yuan, also known as the renminbi (RMB) from the dollar - raised worries over the health of the world's second-largest economy.

The action was widely viewed as way to help boost exports by making them more competitive as economic growth slows, although China's central bank described it as a one-off move to reform its exchange rate system.

Previously, Chinese authorities based the fixing on a poll of market-makers, but the PBoC said Tuesday they will now also take into account the previous day's close, foreign exchange supply and demand and the rates of major currencies.

Wednesday's fix was even lower than Tuesday's close of 6.3232 yuan to the dollar.

Chinese authorities maintain strict controls on the currency, allowing it to trade only within a two percent range of the daily reference rate.

SG Global Economics said in a research report that depreciation "should help the struggling Chinese economy".

"Although the PBoC referred to the move as a one-off, (we) now see the bias for further depreciation," it said.

China is also seeking to reform its yuan policy in an effort to have it included in the International Monetary Fund's basket of "special drawing rights" (SDR) reserve currencies.

AFP