Chinese rate cuts, Greek bailout news may lift STI

News that Germany has backed a Greek bailout extension and China's move to cut interest rates for the second time in three months to revive a slowing economy should serve as tailwinds for the Singapore market this week.

Chinese-related property counters especially are set to gain from the move by China's central bank, effective yesterday, to lower the one-year deposit rate by 25 basis points to 2.5 per cent, and cut the one-year lending rate by a quarter point to 5.35 per cent, market participants say.

China's Purchasing Managers' Index (PMI) contracted for a second straight month in February, according to data released yesterday. It did edge up to 49.9 points from 49.8 in January, but was still below the 50-point level that divides growth and contraction.

German lawmakers voted last Friday to extend the Greek bailout by four more months, despite some misgivings over Athens' willingness to make the needed economic reforms.

"The bailout extension should be a positive for the Straits Times Index (STI) in the early part of the week - it's one monkey off the back of financial markets for now," said Phillip Futures analyst Howie Lee.

"There are still fundamental issues that need to be fixed, but just making sure that the European Union stays together for now is a step in the right direction."

However, remisier Alvin Yong noted: "This changes nothing because the question remains: Will Greece stay in the euro zone once the four-month extension is up, or will it try to back out again?"

Also in the spotlight is the introduction today of a minimum trading price (MTP) of 20 cents a share for mainboard companies - a move by the Singapore Exchange aimed at curbing speculation and market manipulation.

The requirement will come into effect only after March 1 next year. Firms whose share prices fall below 20 cents will have until Feb 28, 2019, to comply with the MTP rule, failing which they could be delisted.

Of the more than 640 mainboard-listed companies, about 250 have share prices of less than 20 cents. Most of these firms are expected to carry out share consolidations to comply with the requirement.

Mr Lee said the new rule, in the short term, could be a drag on trading volume.

"Investors in such companies should check their CDP statement for the number of shares they hold, especially after a share consolidation," he said.

Eyes will be on data from the United States - PMI manufacturing data today and non-farm payroll data on Friday - for indications as to when the Federal Reserve might raise interest rates.

"If both manufacturing and non-farm payrolls, which indicate how employment is faring, are good, there is a higher chance of a rate hike by June," Mr Yong said.

Coming out this week as well are Singapore's PMI manufacturing data and first-quarter results for department store operator Isetan Singapore, due tomorrow.

"Isetan's earnings will give us an idea about local consumption and spending. But results might not be good because of growing competition from online retail," Mr Yong said.

Germany and Britain will release Markit PMI data today.

This article was first published on March 02, 2015.
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