Date: June 18, 2024
- As expected, the US Fed kept interest rates unchanged
- The Fed’s dot plot shows officials expect only one rate cut this year
- Fed chair Powell stated no intention to raise rates
- Market pricing in 68% chance of cut in Sep
- STI fell 1% to below 3,300 after spending 23 days above the mark
- OCBC’s offer for Great Eastern “not fair but reasonable”
- Refunds to customers dragged Cordlife into the red
- Goh family makes privatisation offer for Ossia International
- Local stocks enjoyed net retail inflows in 2024 so far: SGX Research
- China stocks outshining ASEAN in 1H 2024: SGX Research
- Maybank: Singapore’s defensive status will serve it well
As expected, the Fed kept rates unchanged, but…
The main market-moving event of the week was the US Federal Reserve Committee (FOMC) meeting which yielded the expected result – unchanged interest rates.
However, depending on your point of view, the accompanying statements and dot-plot of interest rate expectations of Fed governors could be interpreted as either positive or negative.
The negative narrative was that the collective forecast of Fed officials for interest rates now implies only one quarter-point cut by the end of 2024, a significant shift from March, when the Fed projected a total of three quarter-point cuts.
In addition, Fed officials also now forecast that inflation will end the year higher than initially predicted. In his speech, Chairman Jerome Powell said it’s a “balancing act” to lower inflation, manage the “very strong” labor market, and keep the economy growing.
However, no Fed member is thinking of rate hikes
The positive narrative, however, is that Powell also said that although inflation is proving difficult to bring down, no one on the FOMC has rate increases pencilled into their base case economic forecast at the moment.
“We’ve always been pointing to cuts at a certain point. Not to eliminate the possibility of hikes, but no one has that as their base case,” Powell said during Wednesday’s news conference.
Market now pricing in 68% chance of a September rate cut
According to the CME FedWatch Tool, the futures market is now pricing in only a 12% chance of a July rate cut but this rises to 68% in September.
The STI fell below 3,300 after spending 23 trading days above it
The upshot of all this is that trading here was largely cautious throughout the week, with volume amounting to less than S$1b on three of the five trading days. As for the Straits Times Index, its stay above the 3,300 level amounted to a total of 23 trading days when it fell a net 33 points or 1% over the week to 3,297.55.
Most of this loss came on Friday when the index fell almost 27 points or 0.81%. The bulk of this loss came from the three banks.
OCBC’s offer for Great Eastern “not fair but reasonable”
OCBC’s offer to buy the remaining shares of Great Eastern Holdings (GEH) from minority investors is “not fair but reasonable”, said independent financial adviser (IFA) Ernst & Young (EY) Corporate Finance.
In a separate statement, OCBC said its S$25.60 per share offer price is final and will not be increased. The bank also extended the offer’s closing date from June 28 to July 12.
“The offer price of S$25.60 per share is lower than the derived range of values for the shares,” said EY. “We have determined the range of values of the shares to be from approximately S$28.87 per share to approximately S$36.19 per share.”
It derived the price of S$28.87 by applying the average price-to-embedded value (P/EV) ratio of comparable companies over the 10-year period to June 6. The price was adjusted for the dividend of 40 cents per share paid after May 10.
The 11 comparable companies included AIA, Manulife, Prudential and other insurers in Asia.
Meanwhile, the price-to-net asset value ratio implied by the offer price is 1.5 times – lower than the average and median ratios of comparable transactions, which are around 1.8 times. “After having considered carefully the information, we are of the view that the offer is not fair,” said EY.
OCBC had received acceptances for 1.74 million GEH shares, or 0.37 per cent of the total, as at the end of June 13 which brought its stake in GEH up to 89.01%.
EY said the offer was reasonable because the small percentage of minority shareholders, even if they voted fully as one bloc, will “lack the authority to make management decisions, change key personnel or influence the business direction of the group without the support of the offeror”.
Refunds to customers drags Cordlife into the red
Private cord blood bank Cordlife Group reported a net loss of S$11.6 million for the three months ended March 31, reversing a net profit of S$1.2 million in the corresponding quarter the year before. Revenue was recorded as minus S$240,000 in the first quarter of 2024. In the first quarter of 2023, it was S$14.1 million in the black.
The reversal in revenue was attributed to the financial impact of Cordlife handing out refunds to its customers whose stored cord blood samples were compromised as a result of not having been stored at the correct freezing temperature.
Excluding the financial impact of the refund, the group’s revenue for the first quarter of 2024 would have been approximatelyS $9.4 million, a 33% decline from the year-ago figure.
It also noted that what happened in Singapore affected the fortunes of its operations elsewhere: The number of samples stored in the first quarter of 2024 fell by about a third in Indonesia, India and Malaysia compared with the year-ago period.
Goh family makes privatisation offer for Ossia International
The Goh family that controls Ossia International is proposing to privatise the company at S$0.145 per share in cash through a voluntary unconditional offer.
The Singapore-based distributor and retailer of luxury goods has an issued and paid-up share capital of S$31.4 million, with about 252.6 million shares.
The offerors are the group’s executive chairman, George Goh Ching Wah, non-executive director Goh Ching Lai, and chief executive officer Goh Ching Huat.
The offer price is a premium of approximately 20.8% over Ossia International’s last traded price of S$0.12 per share on Jun 7, the last full trading day before the offer announcement. It also represents premiums of about 19.8%, 20.8%, and 16% over the one-month, three-month and six-month volume-weighted average prices, respectively, prior to and including the last trading date.
Local stocks enjoyed net retail inflows in 2024 so far: SGX Research
According to SGX Research in a 14 June report, Singapore stocks enjoyed net retail inflow of S$1.01 billion in the 2024 year to 13 June, comprised of S$959 million in 1Q24 and S$50 million in 2Q24. While the 2Q24 net inflow looks to have slowed considerably, S$597 million of net retail outflow in the trio of Banks has offset S$646 million of net retail inflow to other Singapore stocks.
“UOB experienced a substantial shift in retail flows, with net retail outflow reaching S$366 million, reversing the net buying in the previous two quarters. UOB’s VWAP (volume weighted average price) for 2Q24 (to 13 June) was S$30.25, up 6% from S$28.53 in 1Q24, and 9% from S$27.65 in 4Q23’’ said SGX Research.
China stocks outshining ASEAN in 1H 2024: SGX Research
SGX Research noted in a 10 June Market Update that the China Securities Regulatory Commission (CSRC) market stabilisation measures under the new leadership of Chairman Wu Ching have contributed to a gradual but broad improvement in the China stockmarket sentiment, with the FTSE China A50 Index gaining 13% from the end of January through to the end of May. Over the four-month period, the FTSE China A50 Index saw 9 gainers for every one decliner.
“Singapore also lists more than 100 stocks that recently reported more than one-tenth of their revenue to China. This segment of the Singapore stock market has been mixed in the 2024 year through to 7 June, with S$200 million net institutional inflow led by inflow to the Industrials Sector’’ said SGX Research.
Yangzijang Shipbuilding enjoyed the largest institutional inflow during the first 23 weeks of 2024, with a net S$226m. Hongkong Land was next, with S$25.2m and Geo Energy Resources with S$10.4m.
Maybank: Singapore’s defensive status will serve it well
In a 10 June Singapore Market Strategy report, Maybank said it has raised its year-end STI target to 3,583 as higher-for-longer interest rates brings Singapore’s defensive and low-gearing characteristics back in favour.
“The recent 1Q24 results season confirms this. Market earnings accelerated at the fastest pace since 2Q23’’ said Maybank. “Importantly, nearly a third of our coverage companies delivered earnings ahead of forecasts while downgrades fell. This means the market expectations are bottoming out, giving greater clarity on the STI’s earnings growth’’.
The broker’s top 10 picks are: DBS, Dyna-Mac, Macro Polo, SCI, Singtel, ST Eng, CICT, Frencken, Genting SG and StarHub.
