SINGAPORE (Mar 18): The UK’s Parliament had on March 13 voted to avoid an economically disastrous no-deal split from the European Union (EU), opening the door to delaying Brexit and radically rewriting the terms of the divorce. Prime Minister Theresa May’s preferred deal, which took two years to negotiate, was resoundingly rejected by the Commons for the second time in a vote on March 12.

Although a no-deal Brexit is off the table, all is not peachy with Brexit’s progress. On March 14, after this paper has gone to print, Parliament will vote on delaying leaving the EU. However, the outcome of this vote is not legally binding and the EU is under no obligation to follow what Parliament has voted.

“The legal default in UK and EU law remains that the UK will leave the EU without a deal unless something else is agreed,” May told the Commons after the vote on March 13. “The onus is now on every one of us in this House to find out what that is.”

With Brexit approaching in about two weeks, May says if a deal can be reached in the next seven days, she would ask the EU for a short “technical” extension to the March 29 exit day deadline. If there is no deal by March 20 — the eve of the next European leaders’ summit — the delay will be much longer, she adds.

“The interesting question is how long the extension is and what, if any, conditionality the EU attaches since it requires unanimous approval in Brussels. This will condition the market response,” says Stephanie Kelly, senior political economist at Aberdeen Standard Investments.

Accordingly, the pound climbed to its highest level since June, up 2% against the dollar at US$1.3339 as investors become more optimistic that a hard Brexit would be ruled out. “Our base view — and the currency is telling you this — is we will get some form of resolution,” says KKR global head of macro and asset allocation Henry McVey.

While Brexit news continues to hit the headlines, markets elsewhere have by now learnt to ignore the long-running twists and turns. In a report on March 11, Morgan Stanley predicted that emerging markets could be set for a rally, raising the target for the MSCI Emerging Markets Index by 8% for the end of the year.

The investment bank says the index is likely to be driven higher by additional stimulus from Beijing and bullishness on Chinese shares, among other factors. Chinese stocks make up 32.12% of the index.

So far this year, the CSI 300 — an index of the largest stocks traded on the mainland — and Hong Kong’s Hang Seng Index have outperformed the MSCI’s Emerging Markets Index.

Morgan Stanley says it has “become even more bullish on Chinese equities through the year”, with those stocks leading the charge in the recovery among emerging markets in 2019. The increasing likelihood of a trade deal between the US and China has also brightened the outlook.

However, the ongoing US-China trade tensions have led economists to trim their forecast for Singapore’s GDP growth this year. According to a regular survey done by the Monetary Authority of Singapore and published on March 13, the economists expect Singapore to clock 1.9% for the first quarter, down from the 2.4% forecast in the December 2018 survey. For 2019, GDP growth is seen to come in at 2.5%, a slight downgrade from the 2.6% expected previously.

Respondents identified upsides to be an easing of trade tensions between China and the US that could contribute towards a stronger-than-expected growth turnout for Singapore, and stronger growth in China resulting from fiscal and monetary stimulus. Trade protectionism, however, as well as a hard landing in China, possibly exacerbated by inadequate policy responses, were brought up as downside scenarios.

<strong>SingPost to sell US business?</strong>

Singapore Post was in the news this past week, with analysts betting that the postal and logistics operator will wind down or sell its loss-making US e-commerce business. The four analysts covering this stock say a potential divestment or shuttering of the business will bode well for SingPost’s long-term profitability, according to a Bloomberg survey. The poll was conducted after SingPost said last month it saw an impairment risk to the book value of its US unit. The company is conducting a review of the business, which is “expected to remain loss-making in the current financial year”, Mei Yu Hong, a company spokeswoman, told Bloomberg on Feb 20.

SingPost, which counts Temasek Holdings and Alibaba Group Holding as its two biggest shareholders, had bought majority stakes in US e-commerce companies TradeGlobal Holdings and Jagged Peak for about US$184 million in 2015.

But the US e-commerce business has been a drag on SingPost’s profitability, as the unit suffered losses in each of the last three years, a key reason why SingPost’s market value has more than halved since a record high in February 2015.

The company is expected to report its full-year results in about two months. In 3QFY2019, SingPost recorded earnings of $50.2 million, 15.6% higher y-o-y, but underlying net profit was down 7.5% at $32.9 million. Revenue for the quarter grew 7.6% to $441.4 million, compared with a year ago. On March 14, SingPost shares closed at 98 cents, down half a cent.

Chicken and pig farmer Japfa plunged 7.69% on March 14 to close at 66 cents, following a sharp downgrade by CGS-CIMB analyst Cezzane See from “add” to “reduce”, as a disease outbreak in Vietnam is seen to hurt the company’s pig farming business there. See is lowering her FY2019 and FY2020 earnings per share estimate by 1.4% and 5.9% respectively, owing to lower expectations for the Vietnam swine business. See sees limited margin growth for Japfa’s core poultry business in Indonesia too. Her new price target for Japfa is 63 cents, down from 90 cents previously.

In an after-market announcement, property company Oxley Holdings says it has received an “expression of interest” for Chevron House, one of its investment properties. An unnamed potential buyer, described only as a US-based real estate fund, might offer $1.025 billion for the Raffles Place property that Oxley bought in December 2017 for $660 million. The potential buyer will be paying a refundable deposit of $7.5 million, to be held in escrow for now, pending confirmation of the sale. Oxley shares last traded at 33 cents before trading was halted.

With the 4Q earnings season over, investors will be watching out for the stream of macroeconomic data. On March 18, Singapore will release its monthly non-oil domestic export numbers for February. A slew of US data will follow later in the week, including manufacturers’ new orders for January on March 19.

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