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Straits Times Index’s rebound could approach resistance soon

Goola Warden
Goola Warden • 3 min read
Straits Times Index’s rebound could approach resistance soon
STI may continue to rally before facing resistance as risk-free rates in the US ease, but dampened by Chinese property defaults
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The Straits Times Index ended August and the week of August 28-31 at 3,233, just below the confluence of the 50- and 100-day moving averages at 3,235 and 3,238 respectively. Since smoothed RSI is rising and at its equilibrium line suggesting that the STI could continue to rally. To do so, it would have to be able to rise above the confluence of the moving averages. Directional movement indicators are also at neutral levels, with both ADX and the DIs at neutral readings.

The US risk-free rates abated, with yields of 10-year US treasuries easing from 4.25% a week ago to 4.09%. Directional movement indicators of the 10-year yields have turned down from overbought levels and look set to move towards neutral levels. Against this background, the 10-year yields may move towards 4.05%.

Despite the elevated level of US risk-free rates, the US indices appear quite resilient. Instead, investors are concerned about China. While its policy rates and risk-free rates are easing, China’s residential property sector is under stress and casts a shadow over Asian markets.

Country Garden Holdings missed coupons on two US dollar notes, 4.2% notes due in 2026 and 4.8% notes due in the 2030s. Country Gardens also announced a 1H2023 net loss of RMB48.9 billion compared to a RMB612 million profit a year ago. The Chinese company is proposing a grace of 40 calendar days for an RMB-denominated bond.

“The potential downfall of Country Garden, which was once rated investment grade, appears unexpected by the market. Prices of a number of its bonds fell to ~10 US cents on the dollar, from 30 US cents just over a month ago. We note Chinese developers have been grappling with slower property sales in conjunction with tight liquidity. Country Garden is amongst the largest privately-owned developer, outstripping China Evergrande (the first major Chinese developer domino to fall, which has filed for Chapter 15 protection) by more than 3x in terms of number of projects,” notes OCBC Credit Research in an update.

Sino-Ocean Group Holding owned by China Life Insurance Co (China Life) where China Life is a state-owned company) which has earlier announced consent solicitations to extend coupon payments is potentially hiring a financial adviser for exploring offshore-debt options, OCBC observes. “A leading non-state owned developer, Longfor Group Holdings Ltd saw its ratings downgraded by Moody’s, which reflects pressure on its credit metrics and liquidity buffers from slowing contracted sales, margin pressure and constrained funding access to debt capital markets,” OCBC adds.

See also: Equity markets dictated by rising risk-free rates

Zhongzhi Enterprise Group Co, an asset manager and shadow bank with RMB1 trillion in assets under management failed to make payments to three firms for products that it issued.

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