2014.02.1005:53:33UTC+00Singapore stocks to continue region’s largest rout: Southeast Asia

Baring Asset Management Co. and Bank Julius Baer & Co. expect a deepening decline in Singapore stocks, the worst performers this year among Southeast Asian markets.

The benchmark Straits Times Index sagged down 4.9 percent from December 31 through last week, trailing gauges of Thai, Indonesian, Malaysian and Philippine equities by at least 1.8 percentage points. Stocks slumped as data showed home purchases plunged down last year to a four-year low and retail sales pulled back, while manufacturing growth weakened in China, Singapore’s largest export market.

“The Singapore selloff is due in large part to the sputtering domestic economy,” said David Ross, Maryland Washington-based managing director of Chevy Chase Trust Co., which oversees about $15 billion. “The weakening consumer economy portends weakness in the property segment that could send ripples through the financial system. While not the most likely scenario, the odds of a bursting property bubble are increasing.”

Singapore shares recorded the third-largest pullback among developed markets this year after as much as $3 trillion was wiped from equities worldwide on concern the global economic recovery is faltering. The city’s regulators said February 7 they may introduce a minimum price for stocks and impose collaterals and other restrictions for trades after a decline in the shares of three commodity companies erased $6.9 billion in market value over three days in October.

Singapore companies will struggle to increase earnings amid surging wages and weakening demand for property, according to Baring Asset and Samsung Asset Management Co. The Straits Times Index inched up 0.1 percent as of 10:36 a.m. in the city today.

Home-Price Drop

House prices in Singapore, ranked the most-expensive city to buy a luxury home in Asia after Hong Kong, slid in the fourth quarter for the first time in almost two years, trimming annual gains to the smallest since 2008. Two of the three biggest declines on the Straits Times Index last year were property developers.

CapitaMalls Asia Ltd. (CMA), the worst-performer on the gauge in 2014, may report this week that 2013 net income dropped 19 percent, based on the average of 15 analyst estimates compiled by Bloomberg. Profits at Straits Times Index member companies are expected to fall 1 percent this year, the data show.

“Singapore earnings growth is likely to disappoint this year,” Alan Richardson, whose Samsung Asean Equity Fund outperformed 96 percent of peers tracked by Bloomberg during the past 12 months, said by phone from Hong Kong on February 5. “The key detractors are falling property prices and slowing economic growth in China. The market has already factored in these issues but a sustained market recovery will be difficult if fundamentals are deteriorating.”

Penny-Stock Rout

The daily value of equities traded in Singapore sank to an average S$1.08 billion this year from S$1.77 billion in the same part of 2014 as risk sentiment deteriorated after a plunge in the shares of Blumont Group Ltd. (BLUM), Asiasons Capital Ltd. and LionGold Corp. in October.

The country may set up an independent listing committee and boost enforcement, according to a joint statement from the Monetary Authority of Singapore and Singapore Exchange Ltd. on February 7, following its market structure review spurred by the stock slump.

The city-state also plans to shorten the trade settlement period to two days from three by 2016 and impose more transparency for short selling, the central bank and exchange said. They are seeking industry feedback over the next three months.

January Pullback

The Straits Times Index dropped 4.4 percent in January, the worst start of the year since 2010 and the first time in four years that it underperformed all Southeast Asian markets, according to data compiled by Bloomberg.

“This is one of the worst Januarys we’ve seen,” said Manoj Chaman Lal, vice president of corporate broking at CIMB Securities Singapore Pte. “We never really got out of the October ‘crisis’. If I could snap a picture of what the trading room looks like, it’s almost like a library.”

Prime Minister Lee Hsien Loong is pushing companies to produce more with fewer employees as the island confronts an aging population and voter discontent about foreign workers. Policies ranging from higher levies for overseas labor to tighter limits on non-Singaporeans in some industries, have boosted costs for companies including SIA Engineering Co., which said higher wages helped spur a 9.7 percent drop in third-quarter profit.

Drifting Lower

“Sentiment on Singapore isn’t that great,” Soo Hai Lim, a Hong Kong-based fund manager at Baring Asset, which oversees about $60 billion. “The market is drifting lower as there are no visible catalysts. Cost pressures, particularly on wages, for Singapore companies is quite high and that’s going to eat into their profits.”

Shares on the Singapore benchmark index traded at 13 times estimated earnings on February 5, the lowest since June 2012. The gauge gained 1.8 percent from then through the end of the week.

“We see a sell-off in the Singapore market to be short-lived,” Kum Soek Ching, Singapore-based head of Southeast Asia research at Credit Suisse Private Banking, said by email on February 4. “Valuations look quite attractive.”

Wing Tai Holdings Ltd., a developer of luxury homes near the Orchard Road shopping belt, said last month net income in the three months ended December 31 plunged 45 percent as demand for new residential projects have been adversely affected by tighter mortgage lending policies at Singapore banks. DBS Group Holdings Ltd., Southeast Asia’s biggest lender, is expected to report this week a 4.9 percent decline in 2013 profit, according to the average of 23 analyst estimates compiled by Bloomberg.

Global Rout

Equities around the world are declining this year as China’s economy slows, emerging-market currencies slump and the Federal Reserve cuts stimulus. The MSCI World Index lost 2.9 percent since December 31.

Indonesia was the only Asian nation among eight tracked by Bloomberg where foreign investors bought more stocks than they sold this year. Investors dumped $2.3 billion of South Korean equities and $1.4 billion of shares in Taiwan, the data show.

“The money flow is not coming back to Asia for a while,” Mark Matthews, Singapore-based head of Asia research for Julius Baer, which oversees about $377 billion in client assets, said by phone on February 3. “I don’t see the bottom for Singapore happening any time soon.”