An uncertain Wall St early in the week meant the STI lost 0.4% at 3,573.76

Date: October 14, 2024

• The STI tried twice to rise above 3,600 during the week
• Mid-week weakness on Wall St meant the STI closed 0.4% lower
• Bank earnings on Friday helped lift the Dow and S&P 500 to new all-time highs
• Futures market now 89% certain that Nov’s rate cut will be 25 points
• Institutions have been buying banks, Singtel since Aug
• Lower interest rates to boost S-REITs: REIT ETF issuers
• Top Glove reported RM3.6m 4Q loss: company is disappointed

 

The STI twice challenged the 3,600 level – but fell short

The Straits Times Index briefly challenged the 3,600 level when it crossed above it on Monday during intraday trading before closing at 3,599. After a Tuesday dip brought on by an uncertain overnight session on Wall St, it came close again on Wednesday, closing at 3,595.

However, a pair of downbeat US data releases set the tone for weakness on Thursday and Friday that saw the STI close the week at 3,573.76 for a nett loss of 16 points or 0.6% for the five days.

Average daily volume was S$1.3b and ranged between Tuesday’s S$1.61b to Friday’s S$1.06b.

How Wall Street fared – bank earnings help Dow and S&P close at record highs

The consumer price index for September rose at a 2.4% annual rate, ahead of expectations at 2.3%. Initial jobless claims also rose more than expected, though part of that can be attributed to severe weather in parts of the U.S.

On Thursday, Atlanta Fed President Raphael Bostic also shifted interest-rate expectations a bit when he told The Wall Street Journal that he was open to skipping a cut when the Federal Open Market Committee meets in November.

However, by the end of the week, the major indices were lifted by strong bank earnings, enabling the Dow Jones Industrial Average and S&P 500 to post their fifth consecutive week of gains and close at new all-time highs.

For the week, the S&P 500 added 1.1% at 5,815.03 while the Nasdaq Composite also gained 1.1% to close at 18,394.94. The blue-chip Dow rose 1.2% to 42,863.96.

Fed funds futures almost certain that November’s rate cut will be 25-bp

US newspaper Barron’s quoted Michael Pearce, deputy US economist at Oxford Economics saying “In our view, the combination of a resilient labour market and inflation receding in fits and starts is consistent with a measured pace of Fed rate cuts ahead’’.

As such, the federal funds futures market is pricing in an 89% chance that the Fed will lower its interest rates by only 25 basis points at next month’s meeting, whilst the chance of no rate cut is about 11%. In other words, there is zero expectations of a 50-points cut.

Institutions have been buying banks, Singtel since Aug

In a 10 Oct Market Update, SGX Research said institutional investors have been aggressive net buyers of Singapore stocks since end of August, with the inflows coinciding with various catalysts to re-price local equities.

“Going back to the most recent MSCI rebalance which took effect on Aug 30, institutional investors have since net bought S$1.43 billion in Singapore stocks, reversing the S$1.30 billion of net outflow in the 2024 year through to Aug 29’’.

“The 10 stocks with the most net institutional inflow included the STI banks and Singtel, averaging 5.2% total returns, while the remaining six stocks (Seatrium, Sembcorp, Keppel, SGX, Mapletree Pan Asia Commercial Trust and Genting Singapore) averaged 14.9% total returns’’ said SGX Research.

Lower interest rates to boost S-REITs: REIT ETF issuers

CSOP Asset Management’s Head of Fixed Income, Bruce Zhang said in an 8 Oct SGX Research Market Update that it appears that most of the headwinds that previously hindered S-REITs, a strong Sing dollar, high inflation, cost pressures, and monetary tightening, have now dissipated.

“When combined with a still decent yield (approximately 5.7%) and a reasonable spread (around 3.1%), we believe that S-REITs still have potential for further rally and to catch up with their global counterparts, given their relatively attractive yield spread’’ said Mr Zhang.

Phillip Capital’s Deputy Chief CIO, Tan Teck Leng said “While the interest rate cut by the US Fed took longer than expected to arrive, the cycle has started with a bang. REITs as an asset class are poised to benefit given that they are seen as rate-sensitive investments’’.

“REITs’ profits will benefit directly from lower borrowing costs (while the effects will be staggered over a period), and their comparative yield attractiveness will become more apparent versus the yields of instruments such as government bonds and fixed deposits whose rates look set to drop. We think market interest is likely to be sustained as a result’’.

In a 7 Oct update, SGX Research reported that FTSE ST Reit Index rose 13.6% for the three months ended September 2024, marking its best quarterly performance since Q2 2020 whilst delivering total returns of 16.4% during the quarter, assuming dividends were re-invested in the index.

“Meanwhile, the iEdge S-Reit Index rallied 14.7% in its best quarterly performance since its inception in 2010. Prior to this, the index’s best quarterly performance was in Q2 2020, when it rose 14.1%’’ said SGX Research.

Top Glove reported RM3.6m 4Q loss: company is disappointed

Top Glove Corporation recorded a RM3.6 million (S$1.1 million) net loss for its fourth quarter ended Aug 31, narrowing losses from the RM461.7 million net loss clocked in Q4 of the previous year.

The glove manufacturer said losses shrank year on year on higher sales volume as customers continued to replenish their glove inventories, which improved utilisation rates and cost efficiency. This translated to a loss per share of 0.04 sen compared with last year’s loss of 5.76 sen per share.

However, the loss in Q4 was a reversal from the RM50.7 million profit it turned in Q3. The quarter-on-quarter decline was attributed to the US dollar’s sudden weakening against the ringgit.

Lim Cheong Guan, Top Glove’s managing director, said on Thursday that the company was disappointed by its latest results.

Sales had been on an uptrend quarterly, with signs pointing to a return to the black for Q4. “But then, in an unexpected twist of fate, the US dollar weakened on the back of interest rate cuts and our hopes of a turnaround in the fourth quarter did not materialise,” said Lim, who was speaking at the company’s earnings briefing.

In response, Maybank said it is lowering its FY25-26 net profit forecasts by 13-38% and downgrading Top Glove from “tactical buy’’ to “hold’’ with a new target price of RM1.08 versus RM1.10 previously.

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