Singapore Stocks Are Floating on Foam

(Bloomberg Gadfly) -- Read the shipping and offshore oil industry news in Singapore and you'd be forgiven for imagining the country's stock market must also be in the doldrums.

A string of restructuring and bankruptcy proceedings was capped last week with reports that distress at oil-services company Ezra Holdings Ltd. has deepened. Ezion Holdings Ltd., one of the biggest companies in the sector, also recently posted its worst loss since the Asian financial crisis.

Regardless, the Straits Times Index is the second best performing stock benchmark in Asia this year, up 11.2 percent, only slightly behind India's Nifty 50.

Singapore shares lagged their Asian peers for much of last year, so perhaps that's not much of a surprise. But what is impressive is the companies driving the rally. Capital goods, which in Singapore encompasses mostly rig and shipbuilders, are up more than 20 percent in 2017.

Real estate is also pushing the market higher, even as construction firms show increasing signs of stress and home prices dropped for the 13th consecutive quarter in the three months ended Dec. 31. Interest rates are also rising both at home and abroad.

MSCI Singapore Index, YTD

+7.8%

Perhaps the clearest sign that stock investors are wearing rose-tinted glasses is the performance of Yangzijiang Shipbuilding Holdings Ltd. Shares of the maker of container ships and offshore oil servicing vessels are the best performing in the MSCI Singapore Index, up 43 percent since January. (Keppel Corp. is second, at 22.6 percent.) Much of Yangzijiang Shipbuilding's gains have come in the past week, after the company posted full-year results that beat some analyst estimates.

Something's got to give. While higher oil prices and a doubling of the Baltic Dry Index suggest the outlook may be looking less bad, that doesn't mean shipbuilders and rig makers are out of the danger zone yet. Ezra's compounding problems and the ongoing restructuring of Rickmers Maritime should serve as a warning: This rally may be floating on a bit of foam.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

To contact the author of this story: Christopher Langner in Singapore at clangner@bloomberg.net.

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net.