Singapore Stocks Post Biggest Drop Since October 2011 on China

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Singapore stocks tumbled, with the benchmark Straits Times Index posting its biggest decline in almost four years amid concerns China’s currency devaluation will hurt bank earnings and slow economic growth.

The Straits Times Index sank 2.9 percent to 3,061.49 at the close of trading in Singapore. DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., the nation’s three key lenders, each slumped at least 4 percent and were the biggest contributors to the benchmark’s decline.

Singapore banks have been making inroads into China and the People’s Bank of China’s move to devalue its currency will hurt their earnings, according to Daiwa Securities Group Inc. China’s yuan tumbled, sparking the biggest two-day selloff in Asian currencies since 1998 after the PBOC’s reference rate was cut to the weakest level since 2012.

“Their exposure to China provides additional headwinds for the Singapore banks,” David Lum, an analyst at Daiwa Securities in Singapore, said by phone. “Their base is still Singapore and Asean, which is also not doing well.”

The Straits Times Index has lost 9 percent this year, the worst-performing stock gauge in the developed world after Greece.

The Greater China region made up 30 percent of pretax profit at DBS in the first half, the most among the three Singapore lenders. The region accounted for about a fifth of OCBC’s pretax profit and about 11 percent of UOB’s.

China Sentiment

“It’s mainly a sentiment issue here from China,” Hans Goetti, head of investment for Asia, at Banque Internationale a Luxembourg SA. The profitability of Singapore banks will probably be limited as “China has slowed down a a lot already,” he said.

Singapore slashed the upper end of its growth forecast for 2015 on Tuesday after the economy shrank last quarter, signaling a softened outlook as China’s slowing growth takes its toll on the city-state’s export-dependent economy.

While Singapore’s banks are among the best-capitalized in the world, loan recovery is suffering after government curbs drove home sales to a six-year low in 2014, oil prices slumped and Southeast Asian economies faltered. Lenders have placed 2.3 percent of their loan books, the most since 2009, in a “special mention” category that signals potential weakness.

In neighboring Malaysia, concerns are mounting as the currency trades at a 17-year low in an economy that’s probably growing at the slowest pace in more than two years, according to a Bloomberg survey before a report Thursday.

CapitaLand Ltd., Singapore’s biggest developer with almost half of its assets under management in China, dropped 4.7 percent, while rival City Developments Ltd. lost 3.5 percent.

Noble Group Ltd. sank 11 percent amid a rout in raw material prices and ongoing criticism of its accounting, even as Asia’s largest commodity trader resumed stock buybacks.

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