A Look at the Week’s Global Economic Events

We take a look at two global economic updates or interesting key developments that happened recently which investors can take note of. First up, we take a look at how Singapore’s manufacturing industry has been benefitting from improving global economic conditions. Next, we’ll move on to the 3 main causes which led to a global stock sell-down during the past week.

Singapore Manufacturing Expands

Channel NewsAsia recently reported the latest figures from the Singapore Economic Development Board (EDB), showing how Singapore’s industrial production accelerated 6.2% in December, which was significantly better than economists’ previous estimates of a drop of 1.4%.

While the entire manufacturing industry expanded at a faster rate during these few months, it is a different story for the different sectors within. The robust growth came mainly from the electronics sector, followed by the data storage and semi-conductors sectors. The biomedical sector was a let down however, as it contracted 14.9% as seen in the chart below:

Singapore manufacturing data

Source: Singapore’s Economic Development Board

Brokerage firm Maybank Kim Eng reported that it is predicting a more bullish year for the Singapore economy as a whole as the turnaround in the manufacturing industry gains traction.

It added that improving global economic conditions have also fuelled growth in the Singapore economy and expect our country to achieve an estimated 4.0% growth for the coming year.

Investors who wish to capitalize on the growth of the electronics and semiconductors sectors can look at Venture Corporation Limited (SGX: V03) and UMS holdings limited (SGX: 558). In contrast, people may also want to keep out from the dwindling growth of the Biomedical sector, which counts Biosensors (SGX: B20) as one of the firms under its wing.

Investors Fret about Triple Whammy as global stock markets tumble

During the past week, a slew of bad news spooked investors and caused a global markets selloff as investors moved into safe-haven assets such as U.S. Treasuries, the yen and gold.

The American stock market benchmark, the S&P 500 index, declined 2.1% on last Friday, and ended last week down 2.6%, its worst week since June 2012. On a local front, the Strait Times Index (SGX: ^STI) slumped 1.94% for the week with other international stock markets also steadily declining.

Let’s take a look at 3 things which might be contributing to the global selloff:

1. Fed tightening in the United States:

The stellar performance of the U.S. stock market since 2009 has largely been attributed to the quantitative easing programme (i.e. financial asset purchases) enacted by the United States Federal Reserve.

But, the Fed had announced back in Dec that it would be trimming its asset purchases by US$10 billion a month and that the plan would go on till the end of this year.

The Fed did state however, that the trimming could be halted or re-started at the Fed’s discretion based on its reading of the American economy’s health.

2. Emerging Markets:

With the U.S. Federal Reserve cutting back on its stimulus, there is concern that rising interest rates and a strengthening US dollar against emerging market currencies will send the emerging markets toward a financial crisis.

This is because many of the emerging markets continue to be export-driven and devalued domestic currencies can pose a huge risk to them. Furthermore, there were political problems in Turkey, Argentina, and Ukraine, which acted as oil to a fire.

In terms of the emerging market situation, it could perhaps be summarised by Lorne Baring of B Capital Wealth Management in Geneva, who was quoted by Reuters as saying that “We expect the emerging market selloff to get worse before it starts getting better. There’s definitely contagion spreading and it’s crossing over from emerging to developed in terms of sentiment.”

3. China

Soft manufacturing numbers from China once again cast concerns on the Middle Kingdom’s macro trajectory. In addition to that, there’s also the uncertainty over credit risk in the country’ss trust and wealth management products, which holds US$1.67 trillion in assets in the 12 months ended September according to Bloomberg.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo does not own shares in any companies mentioned.