Friday 29 Mar 2024
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SINGAPORE (June 28): The subdued growth in the global economy will cause further corrections in Asian equity markets.

At a media briefing on Tuesday held by Credit Suisse, Suresh Tantia, the assistant vice president of equity investment strategist at Credit Suisse Asia Pacific, says that growth is lacking within the region, which could lead to a weaker Asian equity market.

Though the possibility of a US Fed rate hike has been priced out, generating capital inflows of close to US$4 billion in emerging Asia, excluding China and Malaysia, these foreign flows are not viable for the long-term, says Suresh.

If we look at the GDP growth estimates, 2017’s estimate is around 5.8%, which is in line with 2016 GDP growth. We are not seeing any kind of growth recovery in Asian markets, and until you see that, Asian markets won’t have a sustainable rebound… we are neutral on Asia ex-Japan, but with a slight negative bias,” he says. Even the reasonable price-to-earnings ratio of 11.5 to 12.5 is not good enough without recovery in Asia, he adds.

Suresh also expects a sluggish future for Singapore due to the recent weak macroeconomic data released and Singapore’s open economy, which is vulnerable to global volatility.  A further correction in Singapore’s equity market of between 4-5% in the next three to six months is expected, he adds, while the Straits Times Index is forecast to fall to 2,580 points.

The bank also predicts that the Singapore dollar (SGD) will weaken in a domino effect resulting from the UK leaving the European Union (EU). As the EU is China’s largest trading partner, Chinese authorities will have to devalue the Yuan as the Sterling and Euro values dip, says Heng Koon How, a senior FX investment strategist at Credit Suisse Asia Pacific.

“And if the Yuan is weak, the rest of the Asian currencies have to be weak… and given that China is Singapore’s largest trade partner, the SGD will have to follow,” Heng says. He projects the SGD to decline against the dollar to 1.38 within the next three months, further depreciating to 1.41 in 12 months.

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