A volatile week but the STI managed a 3-pt gain

Date: July 12, 2021

  • China’s attack on its US-listed companies drove early selling;
  • Economic concerns prompted US bond rally – until Friday;
  • STI recorded large daily swings with net 3 points gain at 3,131.40;
  • US 10-year Treasury yield fell to 1.25% but ended at 1.36%;
  • Sembmarine’s rights issue was in focus;
  • Banks were strong first half performers: SGX;
  • Companies bought back S$94m in shares in June

China’s regulators attacked US-listed China companies

It a fairly volatile trading week for the local stock market, with the Straits Times Index jumping almost 50 points on Tuesday as a delayed reaction to the US market’s all-time highs the previous week but then promptly losing a total of 83 points on Wednesday and Thursday.

A Friday rebound of about 24 points ensured that the index moved into the black for the week with a net gain of 3 points at 3,131.40.

China’s regulatory attack on US-listed Chinese companies triggered the initial selling on Wall Street that spilled over here, and this was then followed by economic worries as US bond prices continued to climb.

China’s regulators on Tuesday said they would tighten rules that let Chinese companies list overseas and revise its initial public offerings approval process, potentially halting the possibility of big Chinese IPOs like the one ride-sharing company Didi just completed. That move came after reports that Didi pushed ahead with its IPO even after China’s cybersecurity watchdog suggested it delay the offering.

Economic concerns drove a US bond rally – until Friday

Thursday’s session saw the Dow industrials, S&P 500, and Nasdaq book their worst daily percentage drops since June 18, with investors weighed by concerns that the global economy recovery could be stymied by resurgent Covid-19 cases in some countries.

Also, the US Institute for Supply Management showed that service sector activity was 60.1% in June, down from 64.0% in May and below consensus estimates of 63.5%. The fall in activity was due to restaurants and retailers having difficulty finding workers as well as supply chain disruptions.

All of this added up to a bond market rally with the 10-year US Treasury yield sliding over Monday and Thursday. According to some analysts, a lower yield implies slower growth expectations, which would hit the more cyclically sensitive Dow Jones Industrial Average harder than the S&P 500 and the Nasdaq.

As a result, the yield on the 10-year Treasury note fell to near 1.25% on Thursday but rallied sharply on Friday and was up 0.062 percentage point to 1.36%. The outcome of this stabilisation of bond yields was a surge in stocks, with all three major US indices closing at new all-time highs on Friday.

Sembmarine and Temasek clarified BT article on  Sembmarine’s rights issue

Sembmarine and Temasek on Wednesday referred to an earlier Business Times article that suggested Sembmarine’s proposed rights issue will probably position the company “for a potentially cash-depleting merger with Keppel O&M’’.

Sembmarine said the rights issue and the merger are independent of each other. “The rights issue will address a critical funding need that will see us through till end-2022. A potential combination addresses a longer-term goal to better position SembCorp Marine to compete and thrive on a global stage in the new energy sector’’ said Sembmarine.

Temasek said it was “taken aback’’ by the suggestion in the BT article which it said incorrectly suggested the transaction benefits Temasek at the expense of Sembmarine’s minorities.

“Temasek views the 2021 rights issue to be in the best interests of Sembmarine. Temasek also has an interest in catalysing to a carbon-neutral world. Thus, we have undertaken to subscribe for our pro-rata entitlements to the 2021 rights issue, plus excess rights not taken up by other shareholders up to 67 per cent of the 2021 rights in aggregate’’ said Temasek.

“DBS has separately underwritten the remaining 33 per cent. This means Sembmarine will have certainty that it can raise the full S$1.5b it requires’’.

Banks were first half’s stronger performers

The Singapore Exchange’s educational portal My Gateway reported that bank stocks were among the strongest industries of the global stock market in 1H21, outpacing broad global benchmarks, alongside the iron and steel, semiconductor and O&G service industries. DBS, OCBC and UOB averaged 19.0% total returns over the six months, in-line with the largest global banks by market value, said My Gateway.

Share buybacks amounted to S$94m in June

In a separate report, My Gateway said that in the first half of the year, 59 Singapore primary-listed stocks conducted buybacks with a total consideration of S$368 million, down from S$663 million in 1H20 and up from S$325 million in 1H19. Five STI constituents – OCBC, Wilmar, SGX, Singapore Tech Engineering and Keppel Corp led the 1H21 consideration tally.

In June 2021, 28 companies bought back their shares with a total consideration of S$94.0 million, up from 21 companies buying back shares in May, with a total consideration of S$91.1 million. Last month’s buyback consideration was also up from S$12.6 million in June 2020.

OCBC, Wilmar, Singapore Tech Engineering, SGX and The Hour Glass led the consideration tally in June. The Hour Glass commenced a new mandate in June, as did another 13 stocks.