The Road Ahead For Singapore’s Stock Market In 2016

Welcome to 2016!

Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI), has started the first trading day of the year on what seems like a sour note  – at the time of writing (2:15 pm), the index is down by 1.7% to 2,834 points.

Major developments that have happened so far in 2016 include:

  1. Oil prices have jumped as tensions between Iran and Saudi Arabia increased following the decision by the Saudi Arabian government over the weekend to execute a prominent Shiite cleric.
  2. The latest data from China shows part of the country’s economy has continued to weaken with the manufacturing purchasing managers’ index falling for the 10th straight month in December 2015.
  3. Singapore reported yesterday that it experienced 2% growth in GDP (gross domestic product) in the last quarter of 2015, a result which is much better than expected. The construction and services sectors were the main growth engine for the economy while the manufacturing sector had shrunk by 6% year-on-year.

Let’s look at how the aforementioned developments would impact companies in Singapore’s stock market, if the trends continue.

Rising oil prices

If the price of oil continues to climb and remains high, business activities in the oil production space might increase, potentially leading to oil & gas producers needing to spend more on capital expenditure. Companies like SembCorp Marine Ltd (SGX: S51) and Keppel Corporation Limited  (SGX: BN4), which are both market leaders in the fabrication of oil rigs, may benefit from such a trend.

Weak manufacturing data from China

Even as the Chinese economy is trying to transition into a consumer-led economy, contributions from the manufacturing, export, and commodities sectors are still large. Therefore, if any of these sectors are to suffer, it would most likely have a negative effect on China’s overall economy.

If manufacturing in China continues to be poor and brings down the country’s economy as a whole, companies such as Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) and Yanlord Land Group Limited (SGX: Z25) might face a troubling year in 2016 – both companies operate mainly in China and depend greatly on the health of the Chinese economy.

Majulah Singapura

It wasn’t too long ago that there were fears of Singapore entering a technical recession in 2015. With the latest GDP figures from Singapore’s Ministry of Trade and Industry (MTI), those fears appear to be unfounded – for now.

If the growth in Singapore’s economy continues, companies that are deeply engrained in the country’s economic fabric might benefit greatly. Firms such as Vicom Limited  (SGX: V01) and Starhub Ltd (SGX: CC3), which both do business predominately in Singapore, might be well-positioned to grow together with the country.

Foolish Summary

All these assumptions on the aforementioned stocks would only be true if the trends mentioned above do not change. But, it’s worth pointing out how fast things can and do change.

At the end of the day, it is companies with great fundamentals and strong balance sheets that would stand a much better chance of doing well in the long run regardless of how the overall economy is doing.

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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 writer Stanley Lim owns shares in Keppel Corporation.