Singapore M&A picking up; Short-term momentum favours USD

Low valuations have helped Singapore stocks to weather macro concerns and uncertainties. Short-term momentum indicators have turned in favour of the USD again.
Joanne Goh, Philip Wee09 Jul 2019
    Photo credit: AFP Photo

    Equities: Singapore M&A picking up

    Despite on-going macro concerns and uncertainties, the Singapore market clocked its 5th weekly gains last week. We believe this is largely due to its low valuations which has sufficient cushion for downside risks, and at the same time room for expansion. A dovish Fed and trade truce are key drivers, and have also set the stage for more corporate actions as cost of capital is going to become cheaper. As a result, M&A and privatisation activities have started to spring back. YTD, more than 10 companies have been absorbed from public listing or are in the process of being bought out. This is much higher than the whole of last year, and also exceeds the deals done in 2017. Factors driving the M&A wave include cost savings from being delisted when funding needs are not needed, especially for cash rich companies. Management may see the need to restructure and streamline operations, and to focus on long term goals.

    We identify Singapore stocks in the Tech, F&B, REITs, and Healthcare sectors as potential M&A and privatisation candidates.

    FX: Short-term momentum indicators have reversed for the USD and currencies

    The short-term momentum for the US dollar and other currencies have, between June and July, switched places. The USD Index (DXY) depreciated 1.7% in June, its worst monthly fall since January 2018. The DXY closed at 97.38 on July 8, near the 97.75 level it ended in May. The volatility has been driven mostly by aggressive bets for a 50 bps Fed cut in July from the Fed opening the door for insurance cuts against further escalation in China-US trade tensions. Fed Chairman Jerome Powell’s semi-annual testimonies to US lawmakers on Wednesday and Thursday could extend the USD’s recovery if he sets the stage for the Fed to be patient on rate cut. Last Friday’s stronger-than-expected US payrolls has opened a door for the Fed to await more data to gauge the resilience of the US economy to global headwinds.

    If the Fed adopts a neutral-to-dovish stance, Developed Currencies would be pressured by their own dovish stances. For example, Australia has delivered two back-to-back cuts in May-June. The Bank of England is warning of rate cuts should the UK crash out of the EU without a deal on October 31. The European Central Bank officials have joined together on the need for more stimulus for the weak Eurozone economy. Regarding Emerging Asian currencies, Fed cut doubts could not eclipse the relief from the China-US tariff ceasefire struck at the G20. Payback was highest in countries experiencing export recessions especially the South Korean won, the Taiwan dollar and the Singapore dollar. The mid-rate for the Chinese yuan has been trapped in a 6.95-6.90 range after the tit-for-tat tariffs in May. Markets are no longer overly optimistic about a trade deal anytime soon and is wary of another growth slowdown in China’s GDP data next Monday. 


    Joanne Goh

    Regional Equity Strategist


    Philip Wee

    FX Strategist - G3 & Asia


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