Date: June 24, 2024
- The Straits Times Index regained the 3,300 level but only just
- The market appeared to be stuck in “wait-and-see’’ mode, taking its cue from the US
- Fed officials also appeared to prefer waiting and seeing how the inflation numbers play out
- Probability of a rate cut is 67% in September
- Sabana REIT to issue S$100m in bonds despite Quarz’s objections
- MAS, CAD investigating Seatrium over potential offences linked to Brazil corruption case
- Yoma Strategic, Samudera and Yangzijiang led FTSE ST All-Share Index higher: SGX Research
STI regained the 3,300 mark but traded within a very narrow range
Investors in the local stock market spend the week stuck in “wait-and-see’’ mode, possibly as they waited for stronger direction from overseas. As a result, the Straits Times Index spent the bulk of the week hovering around the 3,300 mark, which it regained on Tuesday after having lost it the previous Friday.
The index’s lowest closing for the week was 3,300 on Wednesday and its highest was Friday’s 3,306.02 which means trading was within a narrow range of only a few points. The net result was a gain of just 6 points or 0.18%.
Volume on Tuesday and Wednesday fell below the S$1b mark but spiked up to S$1.6b on Friday when the index recorded its largest gain for the week, a rise of 6.02 points.
That gain was not reflected in the broad market as the advance-decline score was a weak-to-mixed 290-297 that day.
Fed officials are in cautious “wait and see’’ mode
A wait-and-see approach to adjusting interest rates this year remains the consensus among Fed officials. Last week six of them spoke and all were cautious in their outlook.
“It is too soon to determine whether inflation is durably on a path back to the 2% target,” Federal Reserve Bank of Boston President Susan Collins said.
“There are potential early signs of continued progress on inflation,” St. Louis Fed President Alberto Musalem said, “However, it takes more than one data point to establish a trend.”
“We’re clearly on the backside of inflation,” Richmond Fed President Barkin said. “But the question is, ‘Are we all the way back?’”
Federal Reserve Governor Adriana Kugler sounded the most dovish. “While I remain cautiously optimistic that inflation is coming down, it is still too high, and it is moving down only slowly,” she said in remarks at the Peterson Institute for International Economics.
“I believe that policy has more work to do [but] if the economy evolves as I am expecting, it will likely become appropriate to begin easing policy sometime later this year.”
The more hawkish counter came from St. Louis’ Musalem. He noted that—while not his base case—it is not out of the question that inflation remains stuck above the Fed’s target or even reaccelerates. That could bring rate hikes into the conversation.
“I will need to observe a period of favorable inflation, moderating demand, and expanding supply before becoming confident that a reduction in the target range for the federal-funds rate is appropriate,” Musalem said at a CFA Society St. Louis luncheon. “These conditions could take months, and more likely quarters to play out’’.
The Fed’s decision on June 12 to maintain the federal funds rate at 5.25-5.50% was accompanied by an update in the dot plot, which illustrates each committee member’s projection for rates.
The dot plot now suggests a more conservative policy path, with four policymakers favouring no rate cuts in 2024, seven favouring one 25 basis-point rate cut, and eight favouring two rate cuts.
According to the CME FedWatch Tool, the futures market is pricing in an 89% chance that rates will be held steady at this month’s Federal Open Markets Committee meeting, but a 67% probability that there will be a cut in September.
How Wall Street fared
The S&P 500 (SP500) posted a three-week win streak on Friday, though Wall Street’s bull market stalled on Thursday and Friday. The biggest highlight of the week was chipmaker Nvidia (NVDA) becoming the world’s largest publicly listed firm by market capitalization when it crossed the US$3 trillion mark.
Another highlight was that the benchmark S&P 500 index achieved a significant milestone in surpassing the 5,500 point level for the first time ever. For the week, the S&P 500 added +0.6%, while the blue-chip Dow Jones Industrial Average climbed +1.5%. The Nasdaq was flat.
Sabana REIT to issue S$100m in bonds despite Quarz’s objections
Sabana Industrial Real Estate Investment Trust (REIT) has priced S$100 million of sustainability-linked bonds due in 2029 despite objections to the issue raised by activist investor Quarz Capital.
The bonds will be issued in denominations of S$250,000 and will bear a coupon rate of 4.15%. If the REIT fails to meet its sustainability performance target, there will be a coupon step-up for the bonds.
Quarz Capital in a letter dated June 14 called the bond issuance “highly abnormal and extraordinary” since the REIT currently has “zero refinancing needs”.
Quarz, who lobbied successfully to remove the REIT’s existing manager in favour of an internal one, also believes the issuance could impede the internalisation as the bond terms contain clauses related to the change of control of the manager, which could entrench the current REIT manager and sponsor from being removed.
Defending the bond issuance, the REIT’s manager said it has been working on the bond issuance since June 2022, before Quarz requested to convene an extraordinary general meeting to discuss its internalisation.
The net proceeds from the bond issue will be used for capital expenditures, such as acquiring new properties and asset enhancement initiatives, as well as refinancing existing term loans, including loans made by the joint lead managers.
MAS, CAD investigating Seatrium over potential offences linked to Brazil corruption case
Shares of offshore and marine company Seatrium were in heavy play last week after the company announced it is involved in a joint investigation conducted by the Monetary Authority of Singapore and the Commercial Affairs Department.
The potential offences are related to a decade-old bribery case in Brazil, infamously dubbed “Operation Car Wash”.
Formerly known as Sembcorp Marine, Seatrium said the potential offences are under the Securities and Futures Act and the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act.
On Tuesday, which was the trading day after the announcement, Seatrium’s shares crashed S$0.16 or 9.6% to S$1.51 on trading of 97.3m shares. They regained some ground on Thursday and ended the week at S$1.52.
On Mar 28, the Corrupt Practices Investigation Bureau and the Attorney-General’s Chambers jointly announced that two former Seatrium executives – Wong Weng Sun and Lee Fook Kang – had each been slapped with five charges of conspiring to corruptly give gratification worth millions of dollars to officials in Brazil from 2009 to 2014.
Yoma Strategic, Samudera and Yangzijiang led FTSE ST All-Share Index higher
In a Market Update, SGX Research said that up to 20 June, the FTSE ST All-Share Index generated a 3.9% total return in 2Q24, outpacing the FTSE Asia Pacific Index (+2.7%) and FTSE ASEAN All-Share Index (-1.9%). Over the period, the 94 constituents also booked S$62 million in net institutional inflow.
“The 10 strongest performers of the FTSE ST All-Share Index in 2Q24 (to 20 June) averaged 37% total returns, and were led by Yoma Strategic, Samudera Shipping and Yangzijiang Shipbuilding. The 10 least performing constituents for the period averaged 12% declines, led by Food Empire, Prime US REIT and DFI Retail’’ said SGX Research.
It added that for Yoma, apart from rallying 157% in 2Q24 (till 20 Jun), average daily trading turnover has soared five-fold from 1Q24 level whilst noting that on May 29, the company reported its FY23 (ended 31 Mar) net profit reached US$21.2 million, a turnaround from a net loss of US$63.3 million in FY22.
Investing with Insight: Watch this Week’s Technical Outlook
