Signals that more pain lies ahead may also spell strain for the labour market
By CONRAD TAN AND TEH SHI NING
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(SINGAPORE) Stocks here fell yesterday after more officials warned of a lengthy slog to recovery in the global economy, prompting concerns among some investors that the recent market rally is in danger of fizzling out.
The suggestion of a prolonged downturn ahead could also lead organisations to take a hard look at their headcount.
Yesterday, the benchmark Straits Times Index (STI) finished 21.08 points or 0.9 per cent lower at 2,362.74. The broader MSCI Asia Pacific Index fell 1.6 per cent, ending four straight days of gains, as other major equity markets in the region including Japan, Hong Kong, Australia and South Korea also declined.
Speaking at the Asean-South Korea Commemorative Summit in Jeju on Tuesday, Prime Minister Lee Hsien Loong said that 'we should not be too hasty to pronounce that the recession has bottomed or that things are getting better', as he urged Asian governments to cooperate closely in the face of the global slump.
While 'confidence is slowly being restored', there is still a 'long haul ahead' for the global economy as it suffers from structural problems that will take 'considerable efforts and considerable time' to overcome, he said.
On Wednesday, National Wages Council chairman Lim Pin said that Singapore was 'nowhere near an upturn' and urged workers here to be prepared for the possibility of a prolonged downturn.
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Terence Wong, head of research at DMG & Partners Securities, said that some of the official remarks are 'most certainly' putting a dampener on the recent stock market rally. 'It's probably too premature to sound the trumpet and say that it's all blue skies.'
Among businesses, the outlook for earnings 'is still very clouded', he added. 'For a lot of firms, this quarter is great compared to the previous quarters, but looking ahead, the visibility for orders is still not there.'
One dealer here said that yesterday's market decline was likely also due to some investors cashing in gains on the recent rally. Since March 9, the STI has risen more than 60 per cent.
'Even some of the retail investors who just joined the game in the last couple of weeks are quite happy with the profits. It's probably some profit-taking,' the dealer said.
But he doesn't expect the STI to fall too far even if the rally loses steam. 'People on the Street here are looking for support around the 2,200 level,' he added.
Economists BT spoke to said that even as economic activity picks up again, more job losses are still likely in the months ahead as businesses struggle to cope with lower consumer demand in the world's biggest economies such as the US and Europe.
Also, current government measures to support employment, such as SPUR and the Jobs Credit scheme, are temporary and designed for two years and one year respectively. This means that companies which don't see a turnaround may rethink staffing.
'Though I think that the worst is over in terms of economic growth, the labour market is still going to be strained, as there tends to be a lag in employment response,' said David Cohen, director of Asian economic forecasting at Action Economics here. 'So that's why the note of caution is being sounded - worry that the labour market will respond with a time lag.'
At Phillip Securities Research, 'we don't really believe the whole 'green shoots' story', said economist Joshua Tan.
'The main reason is that consumption in the US is definitely headed for a downtrend, even though it's quite well supported by the fiscal stimulus. That will definitely weigh on markets because consumption is 70 per cent of the US economy and has to adjust after 30 years of global imbalance.'
In Singapore, 'we think the economy will do a double-dip - there is going to be some rebound maybe in the second and third quarters but it'll turn negative again in the fourth quarter'.
So what's propelled the recent surge in equity prices, and will it continue?
'We believe the recent stock market rally has factored in the initial turnaround in global business activity,' said UOB Kay Hian's research team in a strategy report. 'Sustainability of the rally will depend on the recovery in final demand.'
Brandon Ng, deputy head of research at Phillips Securities said that 'fundamentally, things don't look so good, but the rally's been driven strongly by the liquidity in the market and the strong balance sheets of investors in the Asian markets'.
'Singaporeans' balance sheets are much better now compared to the Asian financial crisis, so they have excess cash to plow into the market,' he added.
Citigroup economist Kit Wei Zheng said that 'there is a chance that retrenchments may be near their peak, though net job losses may still climb as retrenched workers may not be rehired as quickly as before as vacancies dry up'.
DMG's Mr Wong said that economic activity here and elsewhere has 'definitely improved quite tremendously' from the first quarter for a variety of reasons - 'there's restocking in manufacturing inventories and the stimulus packages are coming through'.
'But beyond this restocking activity for manufacturing firms, we still need to see end-demand for consumers coming through, and the jobs situation would have to improve tremendously for that to happen,' he added. 'I do think it will happen, but not as quickly as some of the optimists think.'
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