Highlight Singapore stocks head for biggest drop since 2011 on China

by **Cals** Wed 12 Aug 2015, 18:50

Highlight
Singapore stocks head for biggest drop since 2011 on China

SINGAPORE (Aug 12): Singapore stocks tumbled, with the benchmark Straits Times Index heading for its biggest decline since October 2011 amid concerns China’s currency devaluation will hurt bank earnings and slow economic growth.
The Straits Times Index sank 2.5%, the most among Asia-Pacific benchmarks, to 3,073.37 as of 11:30 a.m. in Singapore. [size=14]DBS Group Holdings ([You must be registered and logged in to see this image.] Financial Dashboard), Oversea-Chinese Banking Corp. ([You must be registered and logged in to see this image.] Financial Dashboard) and United Overseas Bank ([You must be registered and logged in to see this image.] Financial Dashboard), the nation’s three key lenders, each slumped at least 4.4% and contributed the most to the benchmark ’s decline.
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 8.7% this year, the worst-performing stock gauge in the developed world after Greece.
The Greater China region made up 30% 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% of UOB’s.
China Sentiment
“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, signalling a softened outlook as China’s slowing growth takes its toll on the city-state’s export-dependent economy.
While Singapore’s banks are among the best-capitalised in the world, loan recovery is suffering after government curbs drove home sales to a six-year low in 2014, oil prices slumped and Southeast Asian economies faltered. Lenders have placed 2.3% of their loan books, the most since 2009, in a “special mention” category that signals potential weakness.
In neighboring 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 ([You must be registered and logged in to see this image.] Financial Dashboard), Singapore’s biggest developer with almost half of its assets under management in China, dropped 3.4%, while rival City Developments ([You must be registered and logged in to see this image.] Financial Dashboard) lost 1.9%.[/size]