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Hong Kong’s Hang Seng and China’s Shanghai and Shenzhen composite were dragged down by property stocks. The Chinese officials have made it clear they are targeting property developers to curb rising prices. June new home prices in China showed prices in 69 out of 70 cities rose, a sign that the curbs are not having too much of an effect.
In March, China stepped up a three-year campaign to cool home prices, including implementing property tax. There was more bad news in China. Local rating firms are expecting the onshore market’s first default to occur in the next six to 12 months on the slowdown. There have been no defaults in domestic debt since 1997. However, analysts expect downgrades to occur after high-profile companies such as Suntech Power Holdings and LDK Solar Co defaulted on their payments.
Meanwhile, Southeast Asian stock markets are holding up well. Singapore’s STI closed up slightly higher with most of the sectors positive, except for seven companies in the oil, gas and consumer goods sectors. Given the overnight performance in US and Europe, we should expect Singapore, Indonesia and the Philippines to perform well the last day of the week. REIT investors would be happy to hear the forecast for office rents in Singapore is expected to rise at the end of 2014, according to Lynette Leong, CEO of CapitaCommercial Trust.
Gold rebounded from a low of 1273 to 1285 this morning, at 7:49am Singapore time. Traders are staying bullish on gold as Bernanke stuck to his script of keeping fiscal policy accommodative. Investors may have lost faith in the performance of gold this year, down 24% YTD. That said, demand for physical gold is strengthening in Japan and China. We see gold trading in a range of 1200-1300. Breakout from these levels will signal the direction its heading.
Copper prices appear to have stabilised since touching a low of $299.80 on 25 June, gaining 1.8% since then. There are fundamentals working against the industrial metal, with analysts expecting further declines in the coming months.
WTI crude continues to push higher, touching $108.05, closing the gap with Brent to $1. Surprise better-than-expected manufacturing data from the Philadelphia print at 19.8, from an expected 8, is giving crude further impetus to move higher to a target price of $110.