How will Singapore corporates cope as oil prices crash?

The bloodbath is not over yet.

Crashing oil prices have sent ripples of fear across the market. Singapore corporate earnings are increasingly coming from overseas sources, and many listed firms will not be spared from the effects of the plunging oil prices.
According to CIMB, Singapore corporate earnings will be directly affected if oil prices fall to US$80/bbl oil price in 2015 on the major sectors in Singapore.

“The direct sector losers are clear, they would be O&M and plantations. Indirectly, the consumer sector is at threat too if Indonesia and Thailand struggle as commodity prices come off. If crude oil prices remain depressed, we would be increasingly positive on the transport sector,” stated CIMB.

“The main fear with the crashing oil prices is that when it occurs, it is almost always accompanied by other factors like economic slowdown and financial dislocation. Therefore, the resulting effects are not all that clear-cut.Currency movements also come into play, as dollar strength and weak Asian and A$ is frequently the companion. An increasing amount of Singapore corporate earnings comes from overseas, and there is risk from translation impact,” the report added.

Here’s more from CIMB:

We have been Overweight on the S-REITs and telco sectors for the bulk of 2014. The FSSTI has been flattish in 2014 but the telcos and REITs have outperformed in the past six weeks. 

We suspect we are not done yet with the bloodbath and the defensive sectors will look increasingly attractive. 

We do not think that we have hit trough yet even if there are trading opportunities for oil & gas small caps, the most bombed-out sector YTD. Our country model portfolio includes CD, GLP, MINT, OCBC, UOL and THBEV. Our small cap picks are FCOT, OSIM, PACRA and QTVC.