STI rises to near 2-year high on strong Chinese GDP growth

STI rises to near 2-year high on strong Chinese GDP growth
Employees at a car plant in China. The country’s manufacturing recovery, which started in the middle of last year, gained strength as output and investment accelerated. Photo: Reuters
Published: 4:00 AM, July 18, 2017

SINGAPORE — Shares in Singapore climbed to their highest in nearly two years yesterday, boosted by stronger-than-expected economic growth in China, the Republic’s biggest export destination, as well as expectations that the United States Federal Reserve will remain cautious about the pace of policy tightening.

The Straits Times Index (STI) rose 0.4 per cent to an intraday peak of 3,301.37, its highest since July 28, 2015, before closing at 3,298.24, up 0.3 per cent for the session. In the broad market, gainers beat losers 261 to 181 as about 2.3 billion shares worth S$1.3 billion changed hands.

The most actively traded stocks by value include Global Logistics Properties, which is being privatised by a Chinese consortium in a deal worth about S$16 billion; DBS, Singapore largest banking group; and Singtel, which is divesting its broadband unit Netlink NBN Trust via a S$2.3 billion initial public offering. Netlink NBN Trust units will make their debut on the Singapore Exchange tomorrow.

Sentiment in Singapore shares was also lifted by the strong growth in non-oil domestic exports (Nodx) last month following two months of flat performance. Boosted by a surge in shipments to China, Nodx grew 8.2 per cent year-on-year last month, data from trade agency International Enterprise Singapore showed yesterday, double the 4.1 per cent pace economists had forecast in a Reuters poll.

From a technical perspective, the STI appears to have more upside potential after having broken out of a downward trend line on Friday, suggesting that a more than two-month-long correction is complete. Also favourable for the benchmark is the price-volume trend indicator that has risen to a more than two-year high, and a chart pattern showing an uptrend wave of a five-wave cycle has started.

China’s gross domestic product rose 6.9 per cent in the second quarter from the corresponding period a year earlier, the same rate as the first quarter, the National Bureau of Statistics said yesterday. That was higher than economists’ expectations of a 6.8 per cent expansion, setting Asia’s largest economy on course to comfortably meet its 2017 growth target of 6.5 per cent. It also gives policymakers room to tackle big challenges ahead of key leadership changes later this year.

China’s manufacturing recovery, which started in the middle of last year, gained further strength as both output and investment accelerated. Industrial output rose 7.6 per cent last month from a year earlier, while fixed-asset investment climbed 8.6 per cent in the first half of this year. Retail sales jumped 11 per cent from a year earlier last month.

“As China goes, so go emerging markets. Its solid growth reinforces recoveries for commodity exporters and keeps 2017’s pick-up in global growth on track,” Mr Bill Adams, senior international economist at PNC Bank, was quoted by the Financial Times as saying.

Emerging markets were also underpinned by the diminishing chances of a third US interest rate rise this year after Friday’s weak inflation data and a surprise fall in US retail sales. “The retreat of US long-term interest rates since early 2017 and the Federal Reserve’s commitment to a gradual pace of interest rate hikes are maintaining supportive monetary conditions for emerging market growth,” Mr Adams added.

Elsewhere in Asia yesterday, Hong Kong’s Hang Seng Index rose 0.3 per cent, while Japan’s Nikkei-225 Index edged up 0.1 per cent. Despite the strong economic report card, China’s Shanghai Composite Index fell 1.4 per cent amid concerns about a rush of initial public offerings soaking up liquidity, and tougher regulations following a high-level conference over the weekend attended by President Xi Jinping.

Mr Xi stressed the need to control financial risks and to tackle excess leverage. WITH AGENCIES