More Volatility in the Market

The Singapore stock market has been volatile again this week, losing almost 130 points in the first two trading days and then going up 30 points today, so around 100 points or almost 3.5% loss for the week so far. I'm just going to do a quick analysis of the stock market this week.

(Image source: https://sg.finance.yahoo.com)

First off is the devaluation of the yuan. The yuan is being devalued for the third straight day in a row, not really sure exactly how much it has dropped so far but think it's 3.1% for the week (from the Guardian). The Singapore dollar has also dropped against the greenback along with other regional currencies. I guess that this drop in the yuan would affect the exporters as they would now have to deal with cheaper Chinese exports, while the drop in the Singapore dollar will increase the cost of imports. There is also a risk of a currency war, which would definitely be to the detriment of exporters and importers alike.

Then there's a cutting of Singapore's growth rate. It was at 2-4% for the year, but now the upper limit has be decreased to 2.5%. This decrease in growth forecast is definitely not good news for the economy as a whole, but it is in line with China's drop in exports. The growth may be hampered further by the yuan devaluation.

From what I can gather, those two are the key driving forces that drove down stock prices in Singapore, with banking stocks particularly affected the first 2 days of this week.

The devaluation of the yuan seems to be more of a short term measure for China to deal with it's decline in exports. We should continue watching this as a currency war really may erupt, which would definitely send the stock prices much lower as Singapore doesn't seem to have much to gain from it but has much to lose.

The cutting of growth forecast should not affect our investment decisions as it's just an aggregate of the forecast of companies in Singapore, but companies that we choose may be able to outperform the average. While it is not a piece of good news, but it may not affect the individual companies (it's just an average and only a forecast) so it should not have a very large impact on our decision of investing in the company, other than the reduction in share price that it might bring about. It's a good thing to know as we may want to reassess our potential investments though.

I think I'll adopt a more wait-and-see approach to this decline as the decline in the yuan may not be completed and we're still unsure of the implications that it may bring about. It may be a good idea to dollar-cost average in this scenario so if the share prices goes up, you are able to benefit but are still able to buy more if the opposite occurs.

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