Muted STI activity blamed on dismal China deficit

Investors stay on the sidelines with news of worse-than-expected China exports.

"It has been a very quiet start to the week for the STI as it took time to digest a mixture of positive and negative economic data over the weekend. After a fairly strong start to the STI it spent the majority of the day moving sideways as investors decided to sit this one out ending at 2962.1," said IG Markets Singapore in an evening update.

"The local market ended last week on a downer although the bulls were hoping the STI would edge up today after US non-farm payroll data came in better-than-expected while the Greek debt swap was put to bed for the time being," it said.

"But China caught traders off their guard with a record $31.5 billion deficit as imports dwarfed exports for the first two months of the year. This start-of-the-week bad news is becoming a habit for China after last week’s downward revision of its GDP for 2012," it said further.

"Recent data suggests Singapore traders are reducing exposure to US and regional stocks among all the uncertainty and just sitting on the bench for the next big play. Regional markets were also lacklustre with a meagre 0.2% rise by the Hang Seng the other highlight of the day. Both the Nikkei 225 and the ASX 200 dropped 0.4% while the Shanghai Composite fell 0.2%," IG Markets said.

"China and trade deficit were the buzzwords in the region today although it’s worth sifting through the figures to see exports actually grew 18.4% during January and February, although imports saw a hefty 39.6% rise. But this is an economy restructuring itself to become more domestically driven, so a drop in exports is nothing to panic about," it said.

"There is also an argument that the rising imports are a sign that China is gearing up for stronger exports in coming months, with manufacturers stockpiling imported raw materials, as the US and Europe slowly recover. The reaction we have seen in risk assets to this data shows that many investors are unsure of how to interpret it as an argument can be made either way. The fence is proving to be a comfortable place to sit right now," it added.

"One silver lining from the black cloud of Chinese trade has been a softening of oil prices which has seen Nymex and Brent futures both ease off the gas as traders expect a fall in demand from the world’s second biggest oil consumer," it said further.