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A Recap Of 2012 Major Events Impacting STI
Perspective | 02 January 2013
By: Nicholas Tan
Articles (71) Profile

As we enter into the New Year 2013, let us take a ride back in-time to revisit the major events which have caused a “roller-coaster” effect on the Straits Times Index (STI) for the past year.

 

STI 2012 full-year performance. Source: FactSet Research Systems

Jan 2012 – DJIA Rally Lifts STI

A strong start to the New Year for the Dow Jones Industrial Average (DJIA) led by an improving US economy which reported jobs data, ranging from an increase in private sector employment, lower December 2011 unemployment figure and a decrease in weekly jobless claims, greatly improved sentiments on the local bourse as the STI gained about 200 points for the month.

Feb 2012 – European Central Bank’s Long-Term Refinancing Operations

In its second round of long-term refinancing operation, the European Central Bank (ECB) announced that banks borrowed €529.5 billion under its lending programme aimed at preventing a credit crunch in Europe. This lowered the borrowing costs in the two largest economies struggling with sovereign debt – Italy and Spain, and raised optimism that a full-blown debt contagion in the Eurozone can be avoided.

Mar 2012 – Oil Prices Hit Record High

Crude oil prices rose and traded at an 11-month high of US$126.22 per barrel due to geopolitical tensions related to Iran and its nuclear programme, which resulted in a bullish sentiment for the oil market.

Apr 2012 – China On-Brakes Pressures Wen To Ease

China’s economy expanded at its slowest pace in almost three years. Gross domestic product increased by 8.1 percent in the first quarter, down from 8.9 percent in the previous three months, prompting Premier Wen Jiabao to target economic growth of only 7.5 percent in 2012. Analysts began to speculate that the Chinese economy will rebound and possibly reaccelerate going forward following Wen’s actions of loosening policy to counter weak domestic and European demand.

May 2012 – Biggest Fall In STI On Greek Election Worries

The STI experienced its biggest fall for the year by about 300 points from 3,006.14 to 2,698.90, back to where it started for the year as fears pertaining to the anti-austerity Syriza Party winning the Greek election spread, which could have prompted Greece to exit the Eurozone. This sent global markets into turmoil as it could have caused a domino effect on other debtor nations – Spain, Portugal and Italy to follow in Greece’s footsteps of exiting the Eurozone.

Jun 2012 – “A Victory For All Europe” and “Operation Twist”

Antonis Samaras, the leader of Greece’s center-right, pro-bailout New Democracy party claimed “a victory for all Europe” after topping parliamentary elections, a vote seen as a referendum on the survival of the continent’s common currency, the Euro, boosting market sentiments as world stock markets rallied on this breakthrough news.

Federal Reserve expanded “Operation Twist” by prolonging the programme through the end of the year, selling US$267 billion of short term securities and buying the same amount of long term debt in a bid to reduce borrowing costs and spur the economy.

Jul 2012 – Merkel Backdown At European Summit

European Council President Herman Van Rompuy said a “breakthrough” was declared at the 19th European Summit, when Europe’s leaders finally came up with a set of short-term measures and long-term plans showing that they were serious about solving the crippling debt crisis. They agreed on letting funds intended to bail out indebted governments funnel money directly to struggling banks as well, thus, breaking the vicious circle of bank bailouts piling debt onto already stressed governments. Global stock markets rallied up on these measures taken to ease the debt crisis.

Aug 2012 – European Central Bank’s Outright Monetary Transactions

On 2 Aug-12, the ECB announced that it would undertake “Outright Monetary Transactions” in the secondary bond market. The key difference this time was “conditionality” – governments that take up the offer must agree to a programme of reforms and oversight by the bailout funds and possibly the International Monetary Fund. The bailout plan mainly targeted at Spain and Italy, which struggled with unsustainable borrowing costs earlier in the year, successfully sent Spanish and Italian bond yields down sharply offering some reprieve to these debtor nations.

Sep 2012 – Bernanke Announces Quantitative Easing III

Noting continued weakness of the overall US economy, Federal Reserve (Fed) chairman Ben Bernanke followed in the footsteps of his European counterpart, and announced that the Federal Reserve would launch a third round of so-called quantitative easing, or QE III. The Fed will spend US$40 billion a month purchasing mortgage debt securities till the unemployment rate improves. However, the global stock markets’ reactions were muted as investors have long factored in more quantitative easing and a solution to the European debt crisis.

Oct 2012 – Singapore Just Dodged Technical Recession

Singapore’s gross domestic product shrank by 1.5 percent for the third quarter. The fall was a larger contraction than the median prediction of 1 percent predicted by a group of 15 economists polled by Dow Jones Newswires. But the economy, widely regarded as an indicator for the rest of the region, just avoided a technical recession only because the second quarter figure was revised upward to growth of 0.2 percent from an earlier estimate of a contraction of 0.7 percent.

Unexpectedly, the Monetary Authority of Singapore kept monetary policy unchanged to guide the local dollar on its current appreciation path, as inflation concerns trumped a contraction in the economy in the third quarter. Meanwhile, the Government continued its property cooling measures by announcing a cap on the maximum tenure of all new residential property loans at 35 years to tackle the possible influx of cheap credit fuelled by the rolling out of QE III.

Nov 2012 – Obama’s Victory; Xi’s Transition

Upon the re-election of the Democrat President Barack Obama, global markets momentarily shifted its focus to the impending US fiscal woes, and investors were wary that the “fiscal cliff” could lead the US back into a recessionary phase. However, markets quickly recovered as Obama’s victory coupled with an improving US unemployment data which was at its lowest 7.7 percent signaled that the US recovery is on-track and expects a consensus to be reached between the political parties on the “fiscal cliff” issue.

In China, the world’s most populous nation gathered in Beijing for the once-in-a-decade process to unveil a new set of top leaders to the world. And, no surprises emerged at the Communist Party’s 18th National Congress, with Xi Jinping elected as the new President and Li Keqiang inheriting the Premier position next year.

Dec 2012 – The US “Fiscal Cliff”

US House of Representative John Boehner called off a vote on 20 Dec-12 for a proposal dubbed “Plan B” – proposed raising taxes only on families earning more than $1 million – which the White House opposed, and favored raising taxes on families earning more than $400,000 instead of the $250,000 cited during President Obama’s successful campaign for a new term. This brought the US on the brink of going over the “cliff” as the market awaits and expects a “Plan C” that would help the US avert a fiscal crisis.

At the last hour, the Republican-controlled US House of Representative passed a billed that undo increases for more than 99 percent of households giving a victory to President Obama as he fulfills his election promise of raising taxes on the country’s top earners. The bill would reinstate tax cuts that expired 31 Dec-12 on taxable income of individuals up to $400,000 and of married couples of up to $450,000.

Well trained in aspects of finance and business, Nicholas oversees the finance and manufacturing sectors at Shares Investment.

Please click here for more information about this author.


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