Asian shares slump as China exports fell to seven-month low

China’s exports unexpectedly fell to seven-month low, on the back of softer overseas demand and slowing internal growth. The September export reading dropped 10% in USD terms as compared to a year ago. Imports have declined 1.9% in USD terms. Trade surplus reads $42 billion, which is lower than market consensus of $53 billion.

Weak trade balance data shadows the outlook of the country’s third quarter GDP readings, which is due to release next week.  This also adds pressure to the Chinese yuan, which has fallen to six-year low this week. USD/CNH has broken above key resistance level of 6.70 for the first time since Jan 2016. Yuan has depreciated 3.4% against USD this year, but the effect of depreciation on trade seems diminishing. Some analysts point out that exports are likely to positively return in the next two months as Christmas orders come in.

Asian shares fell sharply after the release of Chinese data, with Hang Seng Index falling over 1.6%. Consequently, the demand for safe-haven assets have picked up. It has been observed that gold, yen and treasury futures have all rebounded from their recent lows.

Singapore Q3 GDP grows at slowest pace in seven years

Singapore’s economy expanded at an annual rate of 0.6 per cent in the third quarter, far below market consensus of 1.7 per cent. This is also lower than the 2 per cent in the previous quarter. This marks the slowest GDP growth in seven years.  The sharp drop in manufacturing activities which shrank 17.4 per cent as compared to the previous quarter was believed to be the main cause of slow-down in economic growth. Service sector activities have also contracted to a smaller extent.

Weak GDP data will probably weigh on market sentiment ahead of the earning season. Yet, given that the Singapore market has already lagged behind its regional peers over the last three months, the downside is limited as compare to other markets. The risk-reward is further cushioned by cheap valuation and relatively high dividend yield.

Separately, the Monetary Authority of Singapore has decided to keep the monetary policy unchanged in the semi-annual monetary policy announcement this morning. The central bank will maintain the slope of S$NEER band at zero percent, and keep the width of the policy band and the level at which it is centered, unchanged. This aligns with market consensus. The Singapore dollar was gradually depreciating against the US dollar since September, as USD strengthened with higher expectations of the Fed rate hike by the end of this year. The key resistance levels for USD/SGD could be found near 1.411 and 1.443 respectively.

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