Easing US inflation worries helps STI jump 3.5%

Date: July 17, 2023

• The STI added 109 points of 3.5% to end at 3,248.63
• A benign US consumer prices report was the main reason
• However, there’s still work to be done
• Futures market pricing in 96% chance of 25-pts rate hike this month
• Singapore narrowly avoided a technical recession
• Dasin Retail Trust loss widens, SIAS sends questions
• In 1H, SGX retail stocks saw net retail inflow of S$1.49b: SGX Research
• ICP shareholder makes conditional cash offer
• Singapore stocks could shine in 2H: OCBC Investment Research

The STI responded to a benign US inflation report by rising 3.5%

Hopes that US inflation is finally easing and therefore that the US Federal Reserve will end its rate hikes soon underpinned a solid week for the local market in which the Straits Times Index jumped 109 points or 3.5% to 3,248.63. Average daily volume also improved to S$1.06b versus S$901m the previous week.

The June US consumer prices report showed more work to be done

US consumer prices rose at a 3% annual pace last month, marking a significant slowdown from May’s 4% pace and coming in below the 3.1% level that economists had expected. Growth in core prices, which strips out the volatile food and energy categories, also slowed more than expected to a 4.8% annual pace from 5.3% in May.

On a monthly basis, the headline consumer price index was up 0.2% in June, compared with a 0.1% climb in May, while core prices also rose 0.2% for the month, down from a 0.4% jump in May.

KCM Trade’s chief market analyst Tim Waterer said in a note that “inflation is on the way down and equities have been on the way up – that seems to encapsulate what has transpired in financial markets (last) week’’.

He added that data on softening inflation has elevated risk appetite on hopes that the terminal interest rate setting is now within “touching distance’’.

But the encouraging top-line figures obscure the challenge the Fed faces next. Bringing inflation down from its current 3% level to the central bank’s 2% target will likely be more difficult for the Fed—and more painful for the economy and financial markets—than bringing inflation down from its 9% peak to 3%.

Fed futures now pricing in 96% chance of 25-bp rate hike this month

The amount of work left to do will likely prompt officials to stay the course and raise interest rates another quarter-point when they meet again on July 25-26. Investors were also bracing for that outcome, pricing in a 96% chance after the data was released that the Fed would raise rates again later this month.

Singapore narrowly avoided a technical recession

Singapore’s economy expanded by 0.3 per cent in the second quarter of 2023 from the previous three months, narrowly avoiding a technical recession or two consecutive quarters of contraction.

Gross domestic product (GDP) also grew 0.7 per cent year on year in the April-June period, according to advance estimates from the Ministry of Trade and Industry (MTI) on Friday.

In the first three months of 2023, the economy had grown by 0.4 per cent year on year, slowing from the 2.1 per cent expansion in the previous quarter. On a quarter-on-quarter seasonally adjusted basis, it shrank 0.4 per cent, a reversal from the 0.1 per cent growth in the fourth quarter of 2022.

Dasin Retail Trust’s loss widened, SIAS sends questions

Dasin Retail Trust, which operates retail properties in the Guangdong-Hong Kong-Macau Greater Bay Area, last week reported that its net loss for the second half ended December 2022 widened to S$221.5 million from S$51.8 million in the same period a year ago.

Its trustee-manager said the greater net loss was mainly due to changes in fair value of investment properties, which resulted in a wider S$297.9 million loss from S$63.9 million in the previous year.

The latest set of results translates to a loss per unit (LPU) of S$0.273 compared to a H2 LPU of S$0.0661 the previous year. LPU for FY2022 amounted to S$0.3455, compared to an LPU of S$0.0626 the previous year.

No distribution has been declared for the period, as the trust has defaulted on loans worth approximately S$910 million. The poor performance prompted SIAS to send a series of questions to the trust.

Regarding the loan defaults, Sias asked the trust to explain to its unitholders the hurdles it faces in disposing some of its assets to deleverage and address the defaults. It also requested the trustee-manager to provide an on-the-ground update on the operating statuses of DRT’s seven malls in Guangzhou.

In relation to the fair value changes in DRT’s investment properties, Sias noted that the trust is now in breach of the gearing, interest-coverage and loan-to-valuation ratios required under its offshore facilities.

It asked the trust to elaborate on how this would impact the refinancing of both the offshore and onshore facilities, as well as the progress that has been made in this area.

DRT’s full-year revenue was down 15.8% to S$85.3 million from S$101.3 million in FY2021. FY2022 net property income (NPI) stood at S$47.2 million, down some 31.8% from S$69.2 million the previous year.

NPI margin fell 13.1 percentage points to 55.2% for FY2022, compared to 68.3% previously. The trustee-manager said this was primarily due to a loss allowance on receivables, excluding which would have seen NPI margin at 75.6%.

Singapore stocks saw net retail inflow of S$1.49b in 1H: SGX Research

In a 10 July Market Update, SGX Research said that for the first half of 2023, the STI generated a marginal 1.2% total return, with Singapore stocks booking net retail inflow of S$1.49 billion, compared to S$951 million in 1H22.

“DBS and UOB booked the most net retail inflow in both 1H23 and 1H22, while Venture, ComfortDelGro, Mapletree Ind Trust and Mapletree Pan Asia Commercial Trust also ranked among the 20 stocks that booked the highest net retail inflow in both 1H22 and 1H23. Overall, the S-REIT Sector booked S$389 million of net retail inflow in 1H23 vs S$443 million of net retail inflow in 1H22’’ said SGX.

“The 20 stocks that booked the most net retail outflow in 1H23, included multiple stocks that observed flow reversals from 1H22. This included Singtel, City Dev, Keppel Corp, CapitaLand Int Comm Trust, Suntec REIT and Keppel REIT’’.

It added that possibly because of rotational trading, Singtel, City Dev, CapitaLand Int Comm Trust, Suntec REIT averaged 7% declines in total return in 1H23 while booking net retail inflow, vs 13% total returns in 1H22 while booking net retail outflow.

ICP shareholder makes conditional cash offer ahead of EGM

A mandatory conditional cash offer for shares of Catalist’s ICP Ltd has been made by a shareholder.

The offer is at S$0.007 per share and is being made by Mr Aw Cheok Huat after he bought an additional 773.2 million shares or 23.3% on Tuesday, bringing his total deemed interest in ICP to 42.63 per cent, amounting to over 1.42 billion shares.

He was previously deemed to have a 19.43 per cent stake, comprising 647.6 million shares. The offer price is 12.5% lower than the counter’s last transacted price of S$0.008 cent on Monday, ahead of the trading halt called on Tuesday.

It represents a 24.7 per cent discount over the volume-weighted average price (VWAP) for the shares traded in ICP over the past month.

Mr Aw’s offer is made solely to comply with the Singapore Code on Takeovers and Mergers due to the acquisition, with no intention to introduce any major changes to the group’s existing businesses.

This change in shareholding and offer comes ahead of ICP’s extraordinary general meeting (EGM) on July 26, requisitioned by shareholder Ang Kong Meng to pass seven resolutions, mainly the removal of several directors.

Mr Ang currently holds a direct interest of 10.99% and indirect interest of 10.35% in ICP. He has cited related-party transactions between ICP and Datapulse Technology as one rationale for his requisition notice since Mr Aw, who is chairman of Datapulse, is the father of ICP executive director Marcus Aw Ming-Yao.

SGX’s June total securities turnover up 3.3% but securities volume down 5.6%

The Singapore Exchange (SGX) said its month-on-month total securities turnover for June rose 3.3% to S$23.7b but securities turnover fell 5.6% to 30.8b units. Securities daily average value traded was S$1.2b, a 13.7% improvement from May, and 1.8% better than June 2022.

Singapore stocks could shine in 2H: OCBC Investment Research

In a 15 July article in The Business Times, OCBC Investment Research head Carmen Lee said there is a good case to be made for the Singapore market:

• Continuous government plans and support to grow key industries;
• Current low market valuations based on the STI. It said given the -1.42% performance so far for 2023, the STI is trading at 10.6 times FY23 earnings and 10.2 times FY24 earnings, which is 2 standard deviations below its 10-year historical average. Also, “the sweetener’’ is the dividend yield of 5.1% based on FY23 estimates and 5.3% based on FY24 estimates;
• Established companies with good long-term track records;
• A growing government and corporate focus on sustainable investments;
• Strong investments in the country;
• A pick-up in tourism arrivals.

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