Blue chips at risk as yuan devaluation bloodbath continues

Banks and O&G players will suffer.

Singapore blue chips are often viewed as safe haven stocks, but this long-held belief might well have been completely shattered after China’s unexpected move to devalue its currency.

A report by RHB Research highlighted that blue chips continue to be at risk after the Straits Times Index’s staggering 4.2% drop in the past two days.

RHB said that banks, commodities and the oil and gas sectors had been and will continue to be the most affected by contagion effects over the health of the Chinese economy, coupled with negative sentiment on forex risk in China-dependent economies such as Malaysia and Indonesia.

“We believe China’s currency move will decrease the appetite for risky assets in Singapore in the near term. Downside risk includes other central banks being forced to follow suit, which may trigger a fresh round of currency weakening in the emerging economies,” RHB Research said. 

Large Singapore companies that have significant exposure to china include DBS, CapitaLand, Global Logistic Properties, and Noble.

Other players with majority of their assets in China include Yangzijiang Shipbuilding, China Everbright International, SIIC Environment, and CapitaLand Retail China Trust.

“We urge investors to stay cautious on forex-exposed companies for now. Amongst our coverage, we favour stocks that rely solely on domestic demand (all SGD-denominated) or generate revenue/lock-in contracts in the USD (or currencies pegged to the USD),” the report said.

RHB Research further warned that further follow-up changes from the Chinese central bank could cause another bloodbath for global equities. 

“Our economist expects further follow-up changes from the PBOC, with the US Federal Reserve rate hike still on the table (either in Sep or Dec 2015), and continuing decline in global equities of 5-10% still probable in the weeks ahead,” RHB Research noted.