Fed’s cautious rate outlook, Wall St’s mid-week dive meant STI lost the 3,800 mark

Date: December 23, 2024

• The STI fell 91 points or 2.4% at 3,719.93
• Main drag came from Wall St, where the Dow fell ten straight days
• As expected, US Fed cut rates by 25 points but forecast less rosy than anticipated
• Wee Hur’s asset sale – good example of “buy in anticipation, sell on news’’
• Suburban retail REITs offer strong growth; threat from JB RTS overhyped: DBS
• Avarga offer: IFA’s advice is to reject but independent directors say accept

 

The STI lost its grip on 3,800

The Straits Times Index’s stay above the 3,800 level lasted only one day last week as US rate concerns surfaced in the middle of the week, leading to large losses on Wall Street.

Led again mainly by the banks, the Straits Times Index fell for four of the five trading days, shedding a nett 91 points or 2.4% to finish at 3,719.93. Among the banks, UOB led the fall with a S$1.51 or 4% loss at S$35.84. This was followed by DBS’s S$0.92 or 2.1% drop to S$42.82 and then OCBC’s S$0.37 or 2.2% loss at S$16.39.

Average daily volume was S$1.18b versus S$972m the week before.

As expected, the Fed cut rates by 25 points – but delivered a negative signal

The Federal Reserve cut interest rates by a quarter point on Wednesday, bringing the target range to 4.25% to 4.5%. The central bank revised its outlook for rate cuts in 2025, however, indicating that there will be two reductions, down from the four forecast in September.

Fed Chair Jerome Powell said that the central bank would be looking for progress on inflation, noting, “We have been moving sideways on 12-month inflation. As we think about further cuts, we’re going to be looking for progress on inflation,” he said.

Uncertainty around inflation among Fed officials is higher. Powell said some officials started to incorporate estimates for the impact of economic effects of policies, while others opted not to.

“The main takeaway from today’s Fed meeting was that inflation risks are back, and the Fed is clearly concerned,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

“The Fed has been able to manoeuvre 100 basis points of cuts so far in this cycle but given the trajectory of the economy and the recent uptick of inflation, it is going to be more difficult for the Fed to provide basis to continue cutting rates at the same pace. The other reality is Powell and company cannot afford to be wrong on inflation again as upside risks continue to persist.”

The Dow Jones Industrial Average fell for 10 consecutive days to Wed

On Wednesday, the blue-chip Dow Jones Industrial Average index fell for the 10^th straight session, down 1,123 points, or 2.6%, marking its longest losing streak since 1974. The S&P 500 dropped 2.95%. The Nasdaq Composite shaved off 3.6%.

All three indices then rebounded on Thursday and Friday after news that the personal consumption expenditures (PCE) price index rose just 0.1% in November from October, or 2.4% on an annual basis. Both were a tick below economist expectations.

For the week, all three major US indices – the Dow, S&P 500 and Nasdaq Composite – fell about 2.2%.

Given Wednesday’s slide was prompted by the Federal Open Market Committee’s concerns about sticky inflation, the PCE helped ease some concerns about price growth.

Wee Hur: “buy in anticipation, sell on news’’

After weeks of speculation, Singapore-listed Wee Hur Holdings confirmed on Wednesday that it had sold its student accommodation assets in Australia for A$1.6 billion (S$1.37 billion) to real estate services provider Greystar.

Following news of the sale, Wee Hur shares closed on Thursday down five cents, or 10.5%, at 42.5 cents. The stock had rallied some 32% over the past two months on talk of a potential sale. It finished the week at xxx.

The seven-property student accommodation portfolio, which includes more than 5,500 beds across key Australian cities, had been jointly owned by Wee Hur and Singapore investment fund GIC, with Wee Hur holding a 50.1% stake, and GIC with the remaining 49.9% held through its unit RECO (Weather).

For its stake, Wee Hur will receive net proceeds amounting to $320 million in cash. The company, through a subsidiary, will also hold a 13% stake in the new entity set up with Greystar.

Wee Hur plans to use the funds from the sale to fuel its growth by supporting reinvestments in its core construction engineering businesses and expansion into new areas like alternative investments.

Suburban retail REITs offer strong growth; threat from JB RTS overhyped: DBS

In a Dec 16 report, DBS Group Research analysts Geraldine Wong and Derek Tan said that suburban retail has “more catalysts than risks”, and offers “strong growth prospects” for 2025.

They continue to prefer the sector “given clearer organic growth visibility” on the back of “a strong macro-landscape for Singapore next year”.

DBS’ top picks in the suburban retail space are Frasers Centrepoint Trust (FCT) and CapitaLand Integrated Commercial Trust (CICT).

CICT is picked for its “commanding position within Singapore retail” whilst  FCT’s “forward yields of 6.1 per cent at levels ‘too good to be true’” as well as its status as “a top beneficiary of a turn in interest costs” make the REIT a top sector pick, Wong and Tan said.

However, whilst the Singapore-Johor Bahru Rapid Transit System (RTS) link is a development to watch – it is also an “overhyped risk” to suburban retail, the analysts said.

Noting that the RTS will “ease the connection between Singapore (and) JB in Malaysia”, they pointed out “concerns about heightened retail leakage, similar to (the) shift in retail spend from Hong Kong to Shenzhen”.

The cross-border project is slated to begin operations in December 2026 and will have the capacity to serve 10,000 passengers an hour in either direction, with the journey taking about five minutes.

Based on average spending of S$100 to S$141 per person per day in JB, DBS estimates an additional “retail leakage” of S$1.8 billion from Singapore each year. That is 3 per cent of total retail value, said the bank.

Moreover, the lender expects this to be temporary. “Over time, we anticipate that shopping leakage to JB will be more of a fad than a lasting trend and will be highly dependent on the maintenance of pricing differentials between the two borders’’.

Avarga offer: IFA’s advice is to reject but independent directors say accept

The independent financial adviser (IFA), Xandar Capital, for the takeover offer for Agarva Ltd (formerly UPP Holdings) that was launched in November at S$0.25 per share by TKO Pte Ltd, in a 13 Dec release advised shareholders to reject the offer as it is not fair and not reasonable.

However, Agarva’s independent directors said they disagree with this opinion and view the offer as not fair but reasonable. As such, their advice is that shareholders should accept the offer.

The Securities Investors Association Singapore issued a press release advising shareholders to follow the IFA’s advice and reject the offer.

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