Date: September 17, 2024
- A firm Wall Street helped push the STI to five consecutive rises, up 3.1% at 3,562.62
- Wall St posted its best week of the year – after its worst week of the year
- Chance of a 50-basis points rate cut this week rises to almost 50%
- Total dollar value of Aug securities turnover on SGX was up, but unit volume was down
- Analysts mixed on SGX’s outlook, stock takes a hit after stellar runup
- Singapore market recently recorded net institutional inflow: SGX Research
- Dyna-Mac shareholders should wait for better offer, analysts say
The STI hit new 52-week highs last week, up 11.4% in 5 weeks
Just over a month ago, the Straits Times Index closed below 3,200 amidst worries over the state of the US economy and concerns that even with interest rate cuts to come, it might be too little too late.
Since then, the rebound has been remarkable, with the STI last week rising on all five days, setting consecutive 52-week highs along the way. Led mainly by the banks, Singtel and Singapore Airlines, the index added 108 points or 3.1% to end Friday at 3,562.65 in average volume of S$1.4b done per day versus S$1.19b the previous week.
In five weeks since closing at 3,198.44 on 6 Aug, the STI has now risen 364 points or 11.4%.
Underpinning the gain last week was a firm Wall Street where the market now thinks that a 50-basis points rate cut could be seen at this week’s Federal Open Markets Committee meeting.
Wall St posted its best week of the year – after its worst week of the year
The S&P 500 on Friday rebounded from its worst week of the year to post its best week of the year. It was also the first time since June 2022 that the benchmark index fell at least 4% in one week and then rallied more than 4% the next.
For the week, the S&P surged +4.0%, while the Nasdaq Composite jumped +6.0%. The blue-chip Dow Jones Industrial Average climbed +2.6%.
Will it be 25 or 50 points this week?
Hopes of a half-point cut were rekindled on Thursday following a report from The Wall Street Journal that suggested officials were weighing a cut of this size.
According to the CME FedWatch Tool, the probability of a 50-points cut is now 45%, up from around 30% a few days earlier.
Whatever happens, Wednesday’s Fed decision is sure to be full of fireworks. Beyond the rate cut decision, Wall Street will pay close attention to forecasts for cuts later this year and any commentary from Fed Chair Jerome Powell’s press conference.
Meanwhile, bond yields continued to retreat, with the yield on the 2-year Treasury note dropping to its lowest close since 2022 at 3.575%. The 10-year yield was down to 3.648%.
Total dollar value of Aug securities turnover on SGX was up, but unit volume was down
Total securities market turnover value on the Singapore Exchange (SGX) rose 22% year on year (yoy) to S$28.8 billion in August, the highest since March 2022. It was also an 8.4% increase from July’s S$26.5 billion.
Meanwhile, securities daily average value climbed 28% on the year to S$1.4 billion, from S$1.2 billion in July. However, total unit volume fell 20% year on year, and 13.5% month on month, to 23.4 billion shares in August.
Retail investors’ net purchases hit a new high of S$685 million, adding positions in index stocks as well as small and mid-caps.
Analysts mixed on SGX’s outlook, stock takes a hit after stellar runup
On Thursday, SGX’s shares dived by as much as 6.6% in early trade before rebounding to close at $11.36, down 3.4% for the day. They fell a further S$0.13 to S$11.23 on Friday but were still up S$0.36 or 3.3% for the week.
The Straits Times reported that Thursday’s fall came after downgrades by investment banks JPMorgan and Goldman Sachs. Prior to Thursday, the stock had surged more than 20% since the start of August.
JPMorgan analysts downgraded SGX to underweight from neutral, citing the 20% drop in unit volume traded in August compared with the same period in 2023, and the 13.5% fall from July.
“The 20-day moving average on trading volumes has declined since August, which is a catalyst for near-term downside,” JPMorgan analysts wrote in a September note to clients.
They recommended selling SGX shares at their current levels to lock in gains ahead of a potential decline in the stock’s value. JPMorgan estimates that the stock could fall to $10.50 in the next 12 months.
Goldman Sachs analysts flagged early signs of a slowdown in SGX’s fixed income, currencies and commodities derivatives franchise, which has been the bourse’s strongest business.
“If this slowdown were to transpire, the earnings headwinds for the group would increase as the equities business remains slow,” analysts noted.
They added that the recent rally in SGX shares as well as the broader stock market is “overdone”, with the price fully factoring in news about a review group set up by the Monetary Authority of Singapore on Aug 2 to revitalise the local bourse.
The analysts have a sell recommendation on the stock, which they expect will decline to S$9.90 in the next 12 months.
However, analysts from local brokerages RHB and CGS International have positive views on SGX, agreeing that SGX could still outperform as a result of stronger average values of the securities traded on a daily basis.
They point out that the average daily value of securities traded for August was the highest since May 2022 and above expectations.
Consequently, RHB analyst Shekhar Jaiswal has raised his profit forecasts for the next two financial years by 5 and 3.3% and set a target price of S$11.80, which is higher than a previous estimate.
CGS International’s Andrea Choong added that the stock could also rise further should revenue from the currencies and commodities derivatives grow. She has a target price of S$12.50.
Singapore market recently recorded net institutional inflow: SGX Research
In a report last week SGX Research said in the 9 sessions to 11 Sep, the broader Singapore stock market booked S$763 million of net institutional inflow, reversing over 50% of the net outflow for the year up to Aug 29.
“Financial Services have led the recent surge in net institutional inflow, followed by Telecommunications, S-REITs, Utilities and Industrials. Actively traded stocks that booked the highest net institutional inflow proportionate to market cap over the 9 sessions included Seatrium, Sembcorp Industries, SGX, Suntec REIT & ComfortDelGro’’ said SGX Research.
It added that average daily turnover for the two STI exchange-traded funds so far this month is at the highest monthly level since June 2022 and that in the first week of September, Structured Warrants and Daily Leverage Certificates linked to Singapore stocks and Indices on average saw turnover notched a third higher than the preceding week.
Dyna-Mac shareholders should wait for better offer, analysts say
South Korean company Hanwha on Wednesday launched the offer to take management control of offshore oil-and-gas contractor Dyna-Mac at S$0.60 a share.
However, The Business Times on Saturday reported that Maybank Securities is recommending Dyna-Mac shareholders “wait and see” for a potentially better deal. OCBC Investment Research said shareholders should reject the offer.
In a report on Thursday, Maybank analyst Jarick Seet said the offer price, though fair, is on the lower end of the fair-value range.
“Given this is not the final offer, we think it would be better for investors to wait for a revised offer that is either closer to or higher than our target price of S$0.64,” he added.
“Dyna-Mac’s order book has doubled to S$896 million in the past year, and it has 50 per cent more land, so we expect the company to execute its order book at a faster pace,” added the analyst. Seet is maintaining his “buy” call on the counter.
OCBC Investment Research remarked that the offer price of S$0.60 “does not fully reflect Dyna-Mac’s true value”. Analyst Ada Lim thus recommends that existing shareholders reject the offer.
On Thursday, she also noted that the offer price was lower than the research house’s fair-value price of S$0.665 by 10% and the Refinitiv consensus’ target price by 6.3%.
It also represents a 2.4% discount to Dyna-Mac’s highest year-to-date share price of S$0.615, as at the close of Aug 13, said Lim. However, as she is positive on the company’s growth prospects and ability to win higher value contracts, she is maintaining her “buy” call on it.
Investing with Insight: Watch this Week’s Technical Outlook
