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Fear Of Taper Tapers Santa Rally
Review, Tradeable | 13 December 2013
By: Brian Brinker
Articles (44) Profile
By: Simeon Ang
Articles (125) Profile

Perhaps, what they really saw was the Ghost of Christmas Yet to Come, that is the tapering of bond purchases by the Federal Reserve.

Back in Singapore, the response to the Little India riots could be keenly watched by investors. According to Prime Minister Lee Hsien Loong, the interest from abroad was understandable as the incident was highly “unusual”.

Top gainers for the week included China XLX Fertiliser (+16.9 percent) which announced a possible exit offer and delisting from the Singapore Exchange. The offer price stands at $0.40 a share. Other big gainers were Asiasons (+15.4 percent) and Eu Yan Sang (+5.5 percent).

Read on to find out what happened over the week!

Source: FactSet Research Systems
What Happened Over the Course of the Past 7 Days?

In Singapore…

1. Local Banks Flourish With Overseas Expansion

The three local banks, DBS Group, OCBC Bank and United Overseas Bank have bucked the slide in the Straits Times Index this year. Their stock prices are up as much as almost 13 percent year-to-date and may well continue to grow in the coming year.

With trade finance business to China fuelling loan growths, analysts are bullish on local banks as the banks pushed aggressively into the global transaction services space. The business had previously been dominated by international banks.

While the local banks have in general, provided a guidance of high single digit loan growth in 2014, analysts contend that there might be room for upside surprises. Particularly given the positive outlook for the global economy in 2014.

Global growth is projected to accelerate to 3.4 percent in 2014 compared to less than 3 percent in 2013. Meanwhile Singapore’s economy is officially projected to grow 2 to 4 percent in 2014.

2. “Deals” Projected to Ramp Up in Singapore

If advisory firm American Appraisal’s predictions for 2014 turn out to be correct, it should be an exciting year for Singaporean investors. In a recent report, the company projected that Singapore, along with Malaysia and Indonesia, should see a substantial rise in completed “deals”, including mergers and acquisitions, private equity deals, IPOs, and venture capital deals.

The advisory firm shied away from offering numerical predictions, but believes that recent rule changes to allow Indian companies to list in Singapore will lead to more IPOs. The firm also believes that robust regional growth will lead to more deals and financial activity.

2013 itself was a pretty good year for deals. Singapore recorded 365 deals valued at US$34 billion. This marks a substantial increase from 2012, when the country closed 338 deals valued at US$28 billion. 61 percent of these deals were cross-border deals, valued at US$24.5 billion. Globally, the first three quarters of 2013 saw 10,400 deals close, valued at US$1.4 trillion.

3. Singapore and other Asian Markets down Amid Tapering Concerns
Only a few months ago, global markets were trending south as the U.S. Congress failed to reach a budget deal. Now, Asian stock markets are heading south again following a two year bi-partisan budget agreement. Why the negative reaction to positive news? Many analysts believe the deal could encourage a rapid wind down of the U.S. tapering programme.

Unsurprisingly, Asian markets reacted poorly to tapering fears. The Straits Times Index opened 30 points lower Thursday, while Nikkei 225 lost 1.6 percent and the Hang Seng dropped by 0.7 percent. The Shanghai Composite also lost 0.1 percent, while other stock markets across the region recorded losses.

Analysts caution that although there is a higher probability of a taper this month, the Federal Reserve might err on the side of caution, preferring to wait for more substantially favourable economic data before tapering.

Around the World…

4. Chinese Retail Sales Rise as Factory Output Slows

China’s retail sales increased in November, surprising many analysts. Sales rose by 13.7 percent as automobile sales grew by 16 percent in November. Fixed asset investments slowed down, but recorded a 19.9 percent growth through the first 11 months of the year. The value of property sales during the same period climbed by 30.7 percent.

While retail sales were growing, however, growth in factory output slowed through November. Still, output was up by 10 percent from a year earlier. Goods for exports advanced by 5.8 percent, lower than what was reported earlier this month. Still, the Chinese government is confident that the country will hit its growth targets for the year.

Market watchers feel that the numbers generally signal a stable and growing China. However, the modest slowdown in investments and industrial production could lead to a softening of growth in the coming months.

5. Chinese IPOs Surge As Autohome Smashes Expectations

The Chinese government is beginning to wind down its temporary ban against IPOs, while Chinese companies are launching IPOs both at home and abroad. Autohome, an online car selling portal, watched its share price climb more than 100 percent in the first day of trading alone! Online betting portal also saw similar growth in its first day of trading.

Clearly, many investors are optimistic about the prospects of these companies. Experts warn, however, that accounting and reporting rules in China remain lax. As such, investors should show caution and restraint when investing in Chinese companies.

6. Japan to Fund Extra $53 Billion Stimulus

With Japan’s recovery seemingly slowing, Abe Shinzo’s government has announced another round of stimulus funding. This extra spending is set to be spent through the rest of the year, and follows a $180 billion dollars stimulus package approved just last week.

The government is also considering other measures, such as a cut to the country’s corporate income taxes, which are among the highest in the developed world. The government is also preparing for a large increase in the national sales tax, which will rise from 5 percent to 8 percent and eventually 10 percent.

7. U.S. Congress on Verge of Two Year Budget Deal

The U.S. Congress is set to pass a two year budget deal that will help the fiscally beleaguered nation to avoid another embarrassing government shutdown. Importantly, the deal is receiving bipartisan support, suggesting that polarizing relations in Washington may finally be warming up. Still, many hard-lined members of the Republican party have already denounced the bill.

The deal is not, however, a cure all for America’s problems. The deal includes no provisions for raising the debt ceiling, an issue that will need to be tackled in only a few more months and more keenly watched by markets.

The lower house of Congress has already approved the bill and it now heads to the upper house, the Senate, where market watchers are confident the bill will pass.

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This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

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