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The Week in Numbers: Chinese Tech Stock Shows Sign of Weakness

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Shares of Tencent Holdings plunged on Wednesday after the company reported poorer than expected profit for the second quarter of 2018. The company had its first earnings decline in 13 years and has already lost more than US$160 billion of its market cap since its January peak. Net income fell 2% to 17.9 billion yuan (S$3.56 billion) over the April to June period. Quarter-on-quarter, mobile gaming declined 19% due to regulations that prevented the company from selling its new game Monster Hunter, and inability to monetise Fortnite and PlayerUnknowns’s Battlegrounds. Tencent also attributed fewer investment gains as reasons for the profit decline. Revenue growth of 30% to RMB73.7 billion also fell short of analyst estimate of RMB77.7 billion.

Meanwhile, the Turkish lira has plunged nearly 20% against the greenback since Friday. The currency crisis which was sparked by a faltering economy and tensions with the United States which has sanctioned Turkey over its detention of an American pastor. At the time of writing, one Turkish lira is equivalent to S$0.23 or US$0.17. The Turkish government has taken steps to increase the liquidity of its banking sector. President Erdogan has also urged manufacturers not to rush to buy dollars to shore up the national currency. Turkish industry minister has also announced the activation of US$1.2 billion for the Turkish industrial production.

Back home, Singapore’s economy grew 3.9% year-on-year in the second quarter of 2018, lower than the 4.5% recorded in the first quarter. It was also short of earlier forecasts of 4.1%. The Ministry of Trade and Industry has kept its gross domestic product growth forecast of 2.5% to 3.5% for the year. This is slightly slower than last year’s 3.6% growth. Manufacturing grew 10.2% year-on-year, while the service sector rose 2.8%. Both sectors decelerated from the first quarter growth of 10.8% and 4% respectively.

Fitch Solutions Macro Research said it has lowered 2018 and 2019 loan growth forecast for Singapore banks to 5.0% and 4.5 respectively. This was down from 6.4% and 6.0% previously forecast. Year-on-year loan growth by domestic banks for the first half of 2018 was between 5.4% and 5.9%. The research firm believes that the property cooling measures will dampen speculative investment appetite and, in turn, affect demand for housing loans. Housing loans account for 30% of overall loans and more than 75% of consumer loans. Of the three biggest banks, United Overseas Bank Limited (SGX:U11) is likely to take the biggest hit as it has the largest exposure to housing loans at 26.8% of overall gross loans.

Finally, a quick update on the US-China trade conflict. China will dispatch Vice Commerce Minister Wang Shoewn to the US for low-level trade talks later this month. The China delegation will meet with American team led by David Malpass, who is US Treasury’s undersecretary for international affairs. Investors are hoping that this will lead to higher level trade talks in the future. The US imposed tariffs on US$34 billion of Chinese imports last month, with China retaliating in kind. Tax on an additional US$16 billion worth of Chinese imports will take effect later this month. US plans to apply another 25% tax on US$200 billion, up from an initial 10% rate.

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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 Jeremy Chia own shares in Tencent Holdings Ltd. The Motley Fool Singapore has a recommendation on Tencent Holdings Ltd and United Overseas Bank Limited.