Business Times - 04 Aug 2009
WHILE the market rallies over the past few weeks have certainly lifted sentiment, it may now be time for a serious reality check. If anything, the main headlines of the previous week added up to just one word: caution.
The growing confidence in the market, and indeed generally, was driven by several factors. For one thing, there was the feeling that the economic decline has bottomed out and that job losses would not be as severe as feared. Second, asset prices are seen to be undervalued and due for a rebound. And corporate earnings so far have also not been as bad as some had expected.
But there was enough evidence last week to suggest that such optimism should be reassessed. New figures released by the Ministry of Manpower showed that 5,500 people were retrenched or had their contracts terminated prematurely in the three months ending June. This is less than half the 12,760 redundancies recorded in the first quarter. That is good news. But it may be less rosy in coming months. Labour chief Lim Swee Say revealed that a number of unionised companies, mostly from the manufacturing sector, have plans to retrench more than 1,500 employees in the coming October-December period, due to falling global demand and high operating costs. This led the ministry to warn of a W-shaped economic recovery, in which the recent improvements are followed by a second dip.
If the economic and jobs situation is less certain than it appears, then the present buoyant mood in the asset markets should be questioned. And this is what Minister for National Development Mah Bow Tan did last Wednesday, when he warned that there are signs of speculation in the property market, and that the government will act if it overheats - despite the insistence of property market players that this is little speculative activity still. The uncertain jobs outlook, however, necessitated the caution - the rebound in asset markets is simply out of step with an economic situation that remains highly fluid. And although corporate earnings have not shocked so far, companies clearly aren't out of the woods yet. Last week, blue-chip Singapore Airlines posted a loss of $307 million for the first quarter ended June 30, its first set of quarterly losses in six years, and warned that it could post its first full-year loss since it was formed in 1972.
On Friday, Great Eastern said it is making a one-time redemption offer to buy back structured investment products, which will negatively impact its Q3 2009 financial results by $250 million. This in turn may lead to a negative impact of $218 million on the earnings of its parent, OCBC Bank, in the third quarter. Singapore corporates clearly still face a painful period of unwinding from the financial crisis. Yet, stockmarket values hit a 12-month high in July. Not surprisingly, a DMG Research technical report yesterday described the overbought condition of the benchmark Straits Times Index as 'a worrying phenomenon'. The amber lights are flashing everywhere, and they should be heeded.
WHILE the market rallies over the past few weeks have certainly lifted sentiment, it may now be time for a serious reality check. If anything, the main headlines of the previous week added up to just one word: caution.
The growing confidence in the market, and indeed generally, was driven by several factors. For one thing, there was the feeling that the economic decline has bottomed out and that job losses would not be as severe as feared. Second, asset prices are seen to be undervalued and due for a rebound. And corporate earnings so far have also not been as bad as some had expected.
But there was enough evidence last week to suggest that such optimism should be reassessed. New figures released by the Ministry of Manpower showed that 5,500 people were retrenched or had their contracts terminated prematurely in the three months ending June. This is less than half the 12,760 redundancies recorded in the first quarter. That is good news. But it may be less rosy in coming months. Labour chief Lim Swee Say revealed that a number of unionised companies, mostly from the manufacturing sector, have plans to retrench more than 1,500 employees in the coming October-December period, due to falling global demand and high operating costs. This led the ministry to warn of a W-shaped economic recovery, in which the recent improvements are followed by a second dip.
If the economic and jobs situation is less certain than it appears, then the present buoyant mood in the asset markets should be questioned. And this is what Minister for National Development Mah Bow Tan did last Wednesday, when he warned that there are signs of speculation in the property market, and that the government will act if it overheats - despite the insistence of property market players that this is little speculative activity still. The uncertain jobs outlook, however, necessitated the caution - the rebound in asset markets is simply out of step with an economic situation that remains highly fluid. And although corporate earnings have not shocked so far, companies clearly aren't out of the woods yet. Last week, blue-chip Singapore Airlines posted a loss of $307 million for the first quarter ended June 30, its first set of quarterly losses in six years, and warned that it could post its first full-year loss since it was formed in 1972.
On Friday, Great Eastern said it is making a one-time redemption offer to buy back structured investment products, which will negatively impact its Q3 2009 financial results by $250 million. This in turn may lead to a negative impact of $218 million on the earnings of its parent, OCBC Bank, in the third quarter. Singapore corporates clearly still face a painful period of unwinding from the financial crisis. Yet, stockmarket values hit a 12-month high in July. Not surprisingly, a DMG Research technical report yesterday described the overbought condition of the benchmark Straits Times Index as 'a worrying phenomenon'. The amber lights are flashing everywhere, and they should be heeded.
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