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US Debt Battle Ends STI’s Best Week Run
Singapore Market Commentary | 27 September 2013
By: Choo Hao Xiang
Articles (151) Profile

After enjoying the best week year-to-date for the 5-day period ended 20 Sep-13 with an impressive 3.8% gain, the Straits Times Index was brought back to Earth. Excitement about the US Federal Reserve staying its QE course died down and the focus was shifted to the US debt ceiling. The latest US weekly jobless claims that came in better than expected did however provide some reprieve.

Markets were concerned about whether the US can get its act together again to raise its US$16.7t borrowing cap by the 17 Oct-13 deadline before cash run out. In a letter to the US Congress, the Treasury Secretary Jack Lew said “If Congress were to repeat that brinkmanship [over the debt limit seen in 2011] in 2013, it could inflict even greater harm on the economy.”

These worries overshadowed positive economic data out of China. The country’s manufacturing sector picked up the pace in Sep-13. The initial HSBC China Manufacturing Purchasing Managers’ Index, which rose to 51.2 from August’s 50.1, followed improved reports in Aug-13, reinforcing the notion that China had bottomed out in 2Q13.

Also in expansionary mode was Singapore’s manufacturing sector. Output rose 3.5% y-o-y in Aug-13 on a 5.3% electronics output growth. Meanwhile, inflation edged up for the fourth successive month to 2% from 1.9% in Jul-13 as accommodation, food, and services costs went up.

Trading on the local bourse remained centered around penny stocks. On average, the past fortnight saw about 5b shares worth only $1.5b changing hands. That worked out to an average of $0.30 per unit. Interest in low-priced stocks were reflected in the FTSE ST Small Cap and FTSE ST Fledging indices which gained 11% and 26% year-to-date.

As we step into the start of 4Q13, the calendar is packed with the US debt battle, Japan’s sales tax hike decision and the assessment of Greece’s finances. Needless to say, the next FOMC meeting in Oct-13 will be closely watched.

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

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