Daily Analysis 6 September 2022 (10-Minute Read)

A wonderful Tuesday to you as stocks struggle amid subdued mood as yields rise.


In brief (TL:DR)

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  • U.S. stocks closed lower on Friday with the Dow Jones Industrial Average (-1.07%), the S&P 500 (-1.07%) and the Nasdaq Composite (-1.31%) all down.

  • Asian stocks struggled for traction Tuesday as tightening monetary policy and Europe’s energy crunch continued to subdue investor sentiment.

  • Benchmark U.S. 10-year Treasury yields four two basis points to 3.23% (yields rise when bond prices fall).

  • The dollar was in sight of a record high.

  • Oil rallied with October 2022 contracts for WTI Crude Oil (Nymex) (+2.10%) at US$88.69, sparked by an OPEC+ output cut cooled on demand risks from China’s Covid lockdowns.

  • Gold edged higher with December 2022 contracts for Gold (Comex) (+0.40%) at US$1,729.50.

  • Bitcoin (+0.73%) rose to US$19,932.


In today's issue...

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  1. Indonesia Stocks Set to Surge Thanks to Commodity Price Gains

  2. China Becomes LNG Exporter as Demand Cools

  3. Singapore’s Biggest Bank DBS Continues to Back Cryptocurrencies

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Market Overview

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Australia delivered its fourth 50 basis points interest-rate hike and reiterated it’s not on a predetermined path in the push to curb inflation.

Borrowing costs are rising in a slew of economies, tightening financial conditions globally and weighing on stocks and bonds.

Asian markets were mixed on Tuesday with Tokyo's Nikkei 225 (+0.03%) and Seoul's Kospi Index (+0.26%) up, while Hong Kong's Hang Seng Index (-0.12%) and Sydney’s ASX 200 (-0.37%) were down.



1. Indonesia Stocks Set to Surge Thanks to Commodity Price Gains

  • On Tuesday, Indonesia’s benchmark stock index was on track to rise to a fresh record thanks to elevated energy and commodity prices.

  • Sentiment has also been boosted by Indonesia’s annual budget unveiled last month, which included plans to shrink the deficit and return growth to pre-pandemic levels.

While global stocks have been hammered by a wave of policy tightening across most major markets, some of Southeast Asia’s most vibrant markets are having a field day.

Less aggressive interest rate hikes to combat inflation has seen funds flocking to Southest Asia in search of opportunities as U.S. stocks swoon, burnishing the appeal of the region’s equity markets.

On Tuesday, Indonesia’s benchmark stock index was on track to rise to a fresh record thanks to elevated energy and commodity prices with the Jakarta Composite Index climbing as much as 0.8% to 7287.7 points and surpassing the previous record set in April this year.

Indonesia, which is blessed with everything from coal to oil and natural gas, has seen the sharp spike in commodity prices buoy the archipelago’s fortunes.

The Indonesian central bank, Bank Indonesia, began tightening only last month with a quarter point hike, which hasn’t stopped its stocks becoming Asia’s best performing major equity market so far this year.

Indonesian energy and industrials sub-gauges have been the best performers on the back of a global shortage of commodities as supply struggles to keep pace with demand amid the reopening of economies, with shares of Indonesia’s raw-material firms soaring.

With robust financial reports, Indonesian commodity and energy stocks are expected to continue to book higher profits and dividend distributions are attractive to investors looking for stable income.

Sentiment has also been boosted by Indonesia’s annual budget unveiled last month, which included plans to shrink the deficit and return growth to pre-pandemic levels.



­2. China Becomes LNG Exporter as Demand Cools

  • China’s biggest energy groups are diverting more LNG away from their domestic market, as demand wanes from a slowing economy.

  • With the rest of the world willing to pay much higher rates for LNG, Chinese importers are taking the opportunity to offload the precious cargoes off to other countries.

Although China only imports more liquefied natural gas or LNG than any country in the world, relying, and accounting for almost a third of consumption, it’s now sending the commodity to other parts of the world as Russia’s invasion of Ukraine crimps supply.

Natural gas prices are at an all time high for this time of year in Europe and Asia, forcing governments to consider unprecedented steps to protect businesses and consumers and Chinese LNG importers have become an unexpected beneficiary of the circumstances.

In order to offer some relief to desperate buyers suffering supply shortages in other parts of the world, China’s biggest energy groups are diverting more LNG away from their domestic market, as demand wanes from a slowing economy.

Chinese supplies of LNG should provide modest respite for natural gas markets rocked by Russia halting a key pipeline to European customers, but is not a long-term solution.

Following major shippers including Sinopec and PetroChina, Cnooc is offering to sell an LNG cargo for November loading from the North West Shelf export project in Australia.

Even smaller Chinese LNG importers, such as ENN Energy Holdings and JOVO Group, have been actively offering to sell shipments for delivery to ports in Asia.

In 2021, China was the world’s top LNG buyer but Beijing’s strict zero-Covid policies and economic slowdown have seen Chinese demand for LNG slump over 20% this year, leaving Chinese importers with excess cargoes.

With the rest of the world willing to pay much higher rates for LNG, Chinese importers are taking the opportunity to offload the precious cargoes off to other countries.

China has said it will accelerate its stimulus rollout in the third quarter as it tries to recover from a second quarter marred by pandemic-related losses, but it is as yet unclear whether such policy moves will help with LNG demand.



3. Singapore’s Biggest Bank DBS Continues to Back Cryptocurrencies

  • Singapore’s biggest bank DBS plans to grow its cryptocurrency and digital asset business, saying it wants to expand its digital exchange and offer services to more of its 300,000 wealthy clients in Asia.

  • DBS Bank’s plans to improve access to its cryptocurrency offerings help support Singapore’s ambitions to be a fintech and digital asset hub.

Despite the bear market, Singapore’s biggest bank DBS plans to grow its cryptocurrency and digital asset business, saying it wants to expand its digital exchange and offer services to more of its 300,000 wealthy clients in Asia.

According to Piyush Gupta, DBS CEO since 2009, the bank has less than 1,000 members on its digital asset exchange but will soon offer the service to 300,000 of its wealthy clients across Asia including private banks, accredited investors, other exchanges and funds through its DBS mobile banking app.

Gupta claims the app would make the process of gaining access to cryptocurrencies less clunky and quicker for clients in addition to allowing DBS to offer the nascent asset class to more customers.

DBS had total assets of US$488 billion as of December 2021 and last year, it received a cryptocurrency licence from the Monetary Authority of Singapore, allowing its institutional and wealthy clients access to its DBS Digital Exchange by invitation.

Before DBS launched its own exchange, about US$1 billion had flowed out of DBS and into global crypto exchanges run by companies including Genesis and Binance.

DBS Bank’s plans to improve access to its cryptocurrency offerings help support Singapore’s ambitions to be a fintech and digital asset hub, even as a string of high-profile failures, including Terra and Three Arrows Capital, forced regulators to take a closer look at the space.

Singapore’s economy remains heavily reliant on financial services and trading, and authorities believe innovation is imperative for the city-state to remain relevant.

Last month, MAS Managing Director Ravi Menon reiterated that cryptocurrencies were not intended for retail investors and said that more regulation was likely to protect mom-and-pop investors, while encouraging the well-heeled to remain engaged and exposed.

The Authority’s commonsense approach reflects Singapore’s strategy when it’s come to casinos as well, with entry fees for locals acting as a deterrent to casual gamblers who could potentially become addicted, while making entry free for foreigners.


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