Date: May 23, 2022
- The Straits Times Index rose 49 points or 1.5% to 3,240.58
- Main support came from positive news out of China
- Wall St continued to be rocked; S&P 500 on the brink of bear market
- Main fears are inflation, interest rates and possibility of recession
- Sembmarine expects first half to be significantly better
- SIA posted a loss but expects to be profitable for FY2023
- China electric vehicle maker Nio makes decent mainboard debut
News out of China helped support the STI
Wall Street shares continued to come pressure last week, which meant so did the local market. The same fears that have prevailed for the three months since Russia invaded Ukraine drove the selling, namely rising inflation, supply chain disruptions, a continued lockdown in China and monetary tightening by central banks, all of which add up to an increasing chance of a recession.
However, thanks to an announcement on Friday by the China authorities of a 15-basis points cut in Chinese banks’ 5-year Loan Prime Rate from 4.6 to 4-4.45%, as well as developments which suggested a full-reopening of the economy by mid-June, the Straits Times Index managed to record a 49-points or 1.5% rise for the week to 3,240.58.
All of this gain came on Friday and was led by the banks, led by UOB, which rose S$0.91 or 3.2% to S$29.42. DBS and OCBC both ended 1% higher.
Wall Street’s S&P 500 narrowly avoided entering bear territory
The S&P 500 would have had to close below 3,837 points, or 20% below its recent highs, for it to officially be in a bear market. It touched an intraday low of 3,801 but closed flat for the day at 3,901.
However, for the week, the Dow Jones Industrial Average was off 2.9%, having dropped for eight straight weeks—which according to a new report, hasn’t happened since 1932.
For the week, the S&P 500 was off 3.1% and the Nasdaq 3.8%, marking seven straight weeks of declines for each. Friday’s close marked the two indexes’ worst showing since 2001, when they fell eight and seven consecutive weeks, respectively. In addition, Friday capped off the largest seven-week point decline on record for the Nasdaq.
Fear number 1: US Federal Reserve action
The US Federal Reserve is already expected to raise interest rates many more times this year to get inflation under control, risking starting a recession by ratcheting up borrowing costs and denting economic demand.
The federal funds futures market Rate are factoring in more than 200 basis points of cumulative hikes for 2022 and a year-end fed funds rate at 2.85%.
Fear number 2: Supply chain disruptions hitting earnings
According to analysts, supply-chain imbalances are becoming increasingly severe, such that their risks go beyond just a short-lived bout of inflation. The main concern is that rising real-time production delays could crimp sales and drag down corporate earnings and economic growth.
For instance, supply-chain challenges and high transport costs battered US retailer Target in the last quarter, the company’s earnings showed, causing its shares to plunge 25% on Wednesday to lead stocks lower. The big box retailer’s revenue rose from the year-earlier period, but net income tumbled 50% as it struggled to pass along higher costs.
Fear number 3: A continued lockdown in China
Fears about the economic toll of China’s strict Covid Zero policy have weighed in global equities since the policy kicked in about one month ago sending the China stock market plunging.
However, respite could come soon following an announcement last week by the Shanghai authorities that 864 financial institutions will be allowed to resume operations and that a full mid-June reopening remains on track.
Fear number 4: US Recession
An increasing number of analysts have been speaking of an impending US recession. For example, Mark Zandi, chief economist at Moody’s Analytics was quoted last week as saying, “Recession risks are high — uncomfortably high — and rising’’.
“For the economy to navigate through without suffering a downturn, we need some very deft policymaking from the Fed and a bit of luck.”
Also last week former Goldman Sachs chief executive Lloyd Blankfein warned of a “very, very high risk” of recession; Wells Fargo CEO Charlie Scharf said there was “no question” that the US economy is heading toward a downturn; and former Fed chair Ben Bernanke cautioned that the country could be poised for “stagflation” — a slowing economy combined with high inflation.
Sembmarine expects significantly better first half
Sembcorp Marine or Sembmarine for short is expecting a “significantly better” financial performance for its upcoming half-year results due to new contract and order developments as well as an improving industry outlook.
This was stated by the marine and offshore engineering group in its first-quarter interim business update on Wednesday where it said six of 12 projects scheduled for delivery in financial year 2022 have been completed in the year to date (YTD).
The latest development has helped to boost Sembmarine’s operating cash flows and overall cash balance, such that the group’s net debt/equity ratio has improved to 0.38 times as at the end of the first quarter of this year, from 0.49 times as at the end of the fourth quarter of last year.
SIA reported lower annual loss, expected to be profitable in FY2023
Singapore Airlines (SIA) on Wednesday reported a narrower annual loss of S$962 million for its year ended 31 March 2022, saying it was ready to ramp up operations further amid returning demand for international air travel as borders reopen in almost all key markets.
SIA’s third consecutive net loss in the 12 months ending on Mar 31 was an improvement from the S$4.3 billion loss a year earlier that included impairment charges on 45 older aircraft.
According to analysts polled by Bloomberg, the airline should be able to generate about S$160m in net profits or earnings per share of S$0.037 on a turnover of S$13.1b for the financial year to March 2023.
Nomura’s target for SIA following the latest results is S$5.30, whilst CGC-CIMB’s is S$5.92.
Nio makes decent mainboard debut
Chinese electrical vehicle maker Nio launched its secondary listing on SGX on Friday, closing at US$17.30, higher than its Thursday closing price of US$16.66 on Thursday. It touched an intraday high of US$20.29 here on Friday.
The company said it expects its unique battery swapping technology to help grow its global market share.
