Despite interest rate optimism, the STI falls almost 1% in thin volume

Date: November 27, 2023

  • A benign Oct US CPI report helped extend Wall St’s rally
  • Impact here was not felt – the STI fell 1% to 3,094.81
  • Volume was low – on Thursday and Friday, less than S$600m per day were traded
  • Probability of a rate hike next month is now 0.2%
  • Singapore enjoyed better-than-expected Q3 GDP growth
  • 2023’s NODX growth downgraded; 2024’s growth forecast at 2-4%
  • October’s factory output grew 7.4% after 12-month slump
  • Frencken in play thanks to analyst upgrades
  • Dasin Retail Trust minorities seek EGM to internalise trustee-manager


A benign inflation report extended Wall St’s rebound but impact not felt here

A benign US consumer price index (CPI) report for October released on Tuesday helped boost hopes that there will be no more interest rate rises from the US Federal Reserve, thus extending a rally on Wall St that started three weeks ago.

It also helped push the Straits Times Index up on Wednesday; unfortunately, that was the index’s only gain for the week. With the STI falling for the four other days, it eventually recorded a nett loss of about 30 points or 1% at 3,094.81, the second time during the week that it closed below 3,100.

Volume was poor, ranging from S$1.2b on Tuesday to a shockingly low S$517.28m on Friday. The daily average was S$769m versus $1.07b the week before.

The headline number for the US’s October CPI was little changed from the month before, while core CPI, which excludes volatile food and energy, rose 0.2%, below expectations for 0.3%. Together, it was one more sign that the Fed is winning the battle against inflation.

Probability that the Fed will keep rates steady is almost 100%

Chances of an interest-rate hike in December have fallen to just 0.2%, according to the CME FedWatch Tool, which also shows a 28% chance of a cut in March. The S&P 500 has now advanced 10% over the past three weeks, its largest three-week gain since 2020.

Singapore enjoyed better-than-expected Q3 GDP growth

Singapore’s Gross Domestic Product (GDP) grew a better-than-expected 1.1% year on year in Q3, revised from an advance estimate of 0.7%. Private-sector economists polled by Bloomberg had expected a growth of 0.8%.

Sequentially, the economy grew 1.4% in Q3, revised from 1% and much faster than the previous quarter’s 0.1% growth.

“The upward revision was expected, but the magnitude was much larger,” Khoon Goh, ANZ head of Asia research was quoted by The Business Times as saying.

“As the advance estimate was based on data for the first two months of the quarter, the upward revision indicates increased pick-up in momentum in the month of September.”

The Ministry of Trade and Industry narrowed its full-year outlook to “around 1 per cent”, the midpoint of its earlier forecast range, due to “subdued external demand”.

This is because even though the US economy had done better than expected in recent months, cumulative rounds of monetary policy tightening are likely to moderate growth in the US and the eurozone, while China’s growth may slow further.

Nonetheless, economists are cautiously optimistic about Singapore’s prospects for the rest of the year and beyond.

“The worst appears to have passed for Singapore’s economy,” said HSBC Asean economist Yun Liu.

“After narrowly avoiding a technical recession in Q2, Singapore’s economy has shown positive green shoots of recovery in H2, though it is still at a nascent stage,” she added. “But what is more encouraging is that the distribution of growth is more broad-based.”

She noted that this was most evident in the manufacturing sector, where contraction eased to 4.6 per cent year on year in Q3, compared with 7.7 per cent previously.

“The services sector posted lower growth than Q2 due to the high base, but maintained a steady momentum in quarter-on-quarter seasonally adjusted terms,” said Maybank economists Chua Hak Bin and Brian Lee. “Growth has become more even, with a pick-up in external-oriented sectors vis-a-vis moderating reopening tailwinds.”

The better-than-expected numbers have prompted at least five banks to raise their GDP outlook for 2023.

UOB and Nomura have upgraded their forecast to 0.9%; Barclays and Citi to 1%; and Maybank to 1.1%. DBS is keeping its outlook at 0.9%, and RHB at 1.5%.

2023’s NODX growth downgraded; 2024’s growth forecast at 2-4%

Enterprise Singapore in its quarterly review of trade performance said non-oil domestic exports (NODX) are now expected to shrink by 12-12.5% year on year in 2023, compared with August’s forecast of a 9-10% contraction.

Total merchandise trade is projected to shrink by around 10% in 2023, narrowing from August’s forecast of a 9-10% contraction.

EnterpriseSG expects a “modest recovery” for 2024. NODX is projected to grow by between 2-4%, while total merchandise trade is expected to expand by between 4-6%, for the full year.

October factory output grew 7.4% after 12-month slump

Singapore’s factory output in October surpassed market expectations with a 7.4% year-on-year rebound after a year-long slump. September’s industrial production has been revised to a 1.1% contraction, from an earlier reported 2.1% decline.

Excluding the typically volatile biomedical manufacturing, output grew 7.3% year on year.

DBS economist Chua Han Teng was quoted by The Business Times: “We think that Singapore’s manufacturing recovery is underway but will still have to watch for more data points to better gauge the pace of the upturn.”

Electronics was the best-performing cluster in October, with output expanding 14.8% year on year, extending the previous month’s 12.7% t growth. This was led by the semiconductor segment, even as other segments declined.

Frencken in play thanks to analyst upgrades

Shares of semiconductor and machine manufacturer Frencken Group on Thursday surged S$0.08 or 7.4% to S$1.16 on volume of 9.1m following an upgrade by DBS Group Research from “hold’’ to “buy’’ and a rise in target price from S$0.78 to S$1.33.

The broker said Frencken is poised for a recovery, supported by a sound balance sheet and its diversified portfolio. The research team expects the semiconductor industry to register strong growth in 2024 and 2025 following a weak 2023.

The new target price is pegged to 13 times DBS’s earnings estimates, slightly above the four-year average price-earnings ratio.

Maybank said so far, Frencken has delivered improving quarters since 1Q23, and it believes this trend is likely to persist. “We think its Malaysia factory utilisation should continue to benefit from its key customer shifting some production from Europe to Malaysia and FY24E should be a much better year. We raise our target price to S$1.39 from S$1.27 as we peg to a higher 12x from 11x FY24E P/E’’ said Maybank.

On Wednesday, Frencken reported a 35.1% fall in Q3 net profit to S$7.1m and a 5.6% drop in revenue to S$184.4m. These figures were in line with UOB-Kay Hian’s expectations, whose research team has maintained its “buy’’ on the stock with S$1.23 target.

Frencken’s shares on Friday closed at S$1.13.

Dasin Retail Trust minorities seek EGM to internalise trustee-manager

A group of 15 investors, who collectively hold over 10% of the units in China retail property trust Dasin Retail Trust, have served a requisition notice to replace its current external trustee-manager, Dasin Retail Trust Management (DRTM), with a newly incorporated internal trustee-manager. The new entity will be wholly owned by all unitholders of Dasin Retail Trust.

On behalf of this group, unitholder Tao Naiqun on Thursday said that the minority investors were seeking to convene an extraordinary general meeting (EGM) to approve the internalisation “as a matter of urgency”.

This was because the trustee-manager’s major shareholder, Sino-Ocean Capital, remains subject to a creditors’ winding-up petition to be heard on Mar 27, 2024. The minority investors are worried about who will look after their interests if the Hong Kong court approves the winding-up, he said.

Dasin Retail Trust earlier this year received separate notices of default occurring under its Singapore dollar and US dollar-denominated offshore syndicated term loan facility of up to S$430 million, as well as a Singapore dollar and Hong Kong dollar-denominated offshore syndicated term loan facility of up to S$106.6 million.

Earnings and news in brief

Thai Beverage posted a 9 per cent drop in net profit to 27.4 billion baht (S$1.2 billion) for its full year ended Sep 30, from 30.1 billion baht in the previous corresponding period.

In a bourse filing on Wednesday (Nov 22), the beverage manufacturer said that it faced cost pressures, and spent more on brand investment and marketing during the period.

Earnings per share stood at 1.09 baht for the year, down from 1.20 baht the previous year.

Revenue for FY2023 rose 3 per cent to 279.1 billion baht, from 272.4 billion baht the year before, backed by an overall improvement in economic activity in Thailand. A final dividend of 0.45 baht per share was declared for the full year, unchanged from the year before. The dividend will be paid on Feb 28, 2024, after the books are closed on Feb 8.

Shares of gaming-related company Winking Studios closed at S$0.21 on their trading debut on Monday versus their S$0.20 offer price but slipped to finish the week at S$0.205.

The company had offered 40 million shares, of which 27.2m was via private placement, with 12.8m subscribed by Acer Gaming and Acer’s chairman and chief executive officer Jason Chen, through a cornerstone investment.

Acer Gaming is Winking’s majority shareholder, and the gaming arm of Taiwan-listed electronics company Acer. Chen is also the majority shareholder of Acer Gaming.

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