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The Edge Singapore
The Edge Singapore5/15/2020 07:00 AM GMT+08  • 7 min read
From SGX removing the 'blunt' MTP tool to Federal Reserve Chair Jerome Powell's warnings of broad virus dangers, here's what went on in the markets this week.
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Quoteworthy: "Every day they don’t drop is a good day." –— Soren Skou, CEO of world’s largest shipping line Moller-Maersk, referring to shipping rates. He expects demand to drop between 20% and 25% in 2Q; if so, “the biggest drop in demand on record, worse than during the global financial crisis”.

SGX RegCo removes ‘blunt’ MTP tool, enhances financial watch-list

The minimum trading price (MTP) rule, which has been a thorn in the flesh for many companies, will be removed effective June 1, according to the Singapore Exchange Regulation (SGX RegCo). As a result, the MTP watchlist will be removed on the same date. Mainboard-listed companies — currently on the MTP watchlist — will also no longer be required to satisfy the exit criteria and apply for removal from the list.

These changes come following the “broad support” received from market participants in response to a public consultation issued by the stock market regulator.

SGX RegCo concedes that the MTP rule has turned out to be a “blunt tool” in addressing the risk of stock manipulation. Moreover, the shares of most of the companies on the MTP watchlist have not been found to be manipulated, it adds.

Instead, these companies have been subject to the risk of a delisting as a result of the MTP rule and have faced challenges in borrowing from banks and developing business relationships, says SGX RegCo.

In place of the MTP rule, SGX RegCo says several anti-manipulation tools, such as the enhanced “Trade with Caution” alerts and Member Surveillance Dashboard, have been implemented.

At the same time, the stock market regulator has refined the exit requirements of the financial watchlist. Starting from June 1, non-recurrent income or income generated by activities outside the ordinary course of business will be excluded in assessing whether companies fulfil the profitability test for exiting the financial watchlist.

In addition, a company will not be considered as meeting the profitability test for exiting the financial watchlist if its latest financial statements are subject to a modified audit opinion.

Similarly, a company will not be considered as meeting the profitability test for exiting the financial watchlist if its auditors have highlighted a material uncertainty relating to going concern.

“SGX RegCo will continue to enhance our tools to prevent and detect manipulation,” says SGX RegCo. — Jeffrey Tan

Singapore to be among last in Asia to return to pre-virus GDP levels

Although the Singapore government has begun easing some restrictions, Morgan Stanley cautions that the republic could be among the last in the region to recover to pre-Covid-19 GDP levels.

While China will arguably lead the pack with a recovery by 3Q2020, economist Deyi Tan says export-oriented economies such as Singapore, Thailand and Malaysia are likely to take until 1Q2021 to recover.

“This group is some of the most export-oriented in Asia ex-Japan (AxJ). Some have also implemented lockdowns, leading to a double hit on exports and domestic demand. We think this group will likely take longer to recover, possibly by 1Q21. Growth risks are skewed to downside,” says Tan.

“First-in-first-out of Covid-19, a domestic-demand oriented economy and policy easing underway means [China] will likely return to pre-Covid-19 levels earliest in AxJ by 3Q20,” she adds.

Tan observes that Singapore is not just one of the countries with the most room in terms of fiscal policy response, but is also an example of “effective” results in containing the virus. However, its export-oriented economy puts it in a vulnerable position.

“Swings in trade tend to be high-beta relative to global nominal GDP and will lead to greater growth volatility for the more export-oriented economies, particularly the smaller, open ones,” says Tan.

“Economies such as Hong Kong and Singapore have some of the more aggressive fiscal policy responses in AxJ but this will likely be partly offset by the low fiscal multiplier amid the uncertain environment and the sizeable drag from external demand,” she adds.

Tan says the war ahead is two-pronged: Countries need to allow economic activities to resume, while simultaneously mitigating the risks of a resurgence in virus cases.

“[This] means a new normal of safe distancing will likely remain in place until we have a vaccine that can be mass produced, which at this stage seems unlikely until spring 2021 at the earliest,” she says. “This will likely constrain the pace of recovery.” — Uma Devi

Powell warns of broad virus danger, bats down negative rates

The US economy faces unprecedented risks from the coronavirus if fiscal and monetary policymakers do not rise to the challenge, Federal Reserve Chair Jerome Powell said while pushing back against the notion of deploying negative interest rates.

“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” Powell said on May 13, in remarks to a virtual event hosted by the Peterson Institute for International Economics. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”

Powell and his colleagues on the policy-setting Federal Open Market Committee have taken dramatic measures to shelter the US economy during the coronavirus pandemic. They have cut their benchmark interest rate to nearly zero, engaged in open-ended bond buying and begun rolling out emergency lending programs as US unemployment soars to levels not seen since the 1930s Great Depression.

Amid such a dark outlook, some investors have bet the Fed might follow other central banks in taking rates into negative territory to spur spending, nudging futures markets to price in a slight chance it could happen. Powell acknowledged the speculation but said such a move was not being considered, though he stopped short of completely ruling the tool out as an option in the future.

”The committee’s view on negative rates really has not changed. This is not something that we’re looking at,” he said. “I know that there are fans of the policy, but for now, it’s not something that we’re considering. We think we have a good toolkit, and that’s the one we’ll be using.” — Bloomberg

Trump says he disagrees with Fauci’s concerns over reopening

President Donald Trump accused the US’ top infectious disease official, Anthony Fauci, of wanting to “play all sides of the equation” with congressional testimony when he warned that reopening the country too quickly could lead to coronavirus case flare-ups.

“I was surprised by his answer, actually,” Trump told reporters on May 14 at the White House. “Because you know, it’s just — to me it’s not an acceptable answer, especially when it comes to schools.”

The president’s public rebuke of Fauci’s testimony was a remarkable split with the director of the National Institute of Allergy and Infectious Diseases, who has come under criticism from some Republicans claiming he has been too cautious in his advice on lifting safe distancing precautions. Trump has been pushing to reopen the US economy faster as joblessness increases.

Fauci on May 12 said that there would not likely be a vaccine or broadly effective treatment for coronavirus before the fall term began for students, and that the US needs “to be careful we are not cavalier in thinking that children are completely immune to the deleterious effects” of the virus.

He warned more generally that if states open before reaching criteria set by the Trump administration, “my concern is that we will start to see little spikes that might turn into outbreaks. — Bloomberg

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