Date: August 7, 2023
- The STI fell 2.3% in line with Wall St after US debt downgrade by Fitch
- Friday’s US report suggested the Fed might still raise rates
- Singtel took a beating on Telkomsel earnings concerns
- Seatrium was the STI’s best performer in July: SGX Research
- S’pore’s PMI edged up in July but still in contractionary mode
- Proxy advisers recommend saying no to proposal to internalise Sabana’s manager
- DBS reported 48% jump in Q2 profit to record S$2.69b
- OCBC reported 34% rise in Q2 profit to S$1.7b
The STI lost 2.3%, falling below the 3,300 mark it had regained a week earlier
A surprise downgrade of the US’s credit rating by ratings agency Fitch on Tuesday sent bond yields spiking up and brought the Straits Times Index tumbling 1.45% on Wednesday ahead of a similar selloff on Wall Street. The pressure continued on Thursday and Friday, leaving the STI nursing a net loss of 79 points or 2.34% for the week at 3,292.39.
Daily volume crossed the S$1b level every day, ranging from Tuesday’s S$1.03b to Monday’s S$1.32b. The average turnover was S$1.19b.
Fitch’s move and Friday’s jobs report
Fitch lowered the credit rating of the U.S. from AAA to AA+ citing “expected fiscal deterioration over the next three years’’.
At the fore of Fitch’s rationale is what it calls an erosion of governance. “There has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025. The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” the rating firm said.
In response, the Dow Jones Industrial Average on Wed fell 348 points or about 1% to 35,282.52. The tech-heavy Nasdaq Composite shed 2.17% to end at 13,973.45, while the S&P 500 pulled back 1.38% to close at 4,513.39. The 10-year Treasury yield rose 0.029 percentage point to 4.077%, its highest yield since November.
The last time US debt encountered a similar downgrade was in 2011 when S&P, 2011, after another major debt ceiling battle. On Aug. 8—the first trading day after the S&P downgrade—the S&P 500 lost almost 7% in what became known as Black Monday. The benchmark index would lose 5.7% that month, and another 7.2% in September.
However, US observers were quick to point out that conditions then and now are very different, whilst US Treasury Secretary Janet Yellen said the move was based on outdated data that ignored the resiliency of the economy.
Friday’s jobs report; futures market pricing in 87.5% chance of a pause in Sep
As a result, Wall St quickly regained its poise, turning its attention to Friday’s July jobs report which showed that job growth is slowing to a more sustainable pace as employers added 187,000 jobs less than economists expected.
However, although this was positive for stocks, the figure is still above the pre-pandemic monthly average — and above June’s revised payroll gain of 185,000 — making it possible that the Federal Reserve will still raise rates at its Sep meeting.
At the moment though, the CME FedWatch Tool shows an 87.5% chance that the Fed will stay put in September.
Singtel takes a battering over Telkomsel concerns
Singtel’s shares took a beating last week after Citi analysts flagged softness from Telkomsel, Singtel’s Indonesian associate.
On Wednesday, the counter which was also trading on a ex-dividend basis plunged S$0.18 or 6.8% to S$2.46 on volume of 55.3m. The quarterly dividend was S$0.02.
On Tuesday, Citi analysts Arthur Pineda and Luis Hildao opened a “30-day negative catalyst watch’’ on Singtel, with potential downside to Citi’s and consensus estimates for the first quarter 2024 net profit after tax.
Telkomsel’s net income for the quarter ended 30 June fell 21% to 5.41 trillion rupiah (S$476m) year-on-year. Citi estimates that Telkomsel will generate around 24% of Singtel’s group pre-tax profits for FY2024, so unexpected softness could weigh on Singtel’s overall Q1 2024 profit outlook.
Singtel finished the week at S$2.44.
Seatrium was STI’s best performer in July: SGX Research
In a 1 Aug report, SGX Research said the 5.2% gain on the month was the STI’s strongest performing month since a 6.4% gain in November 2022, with the STI trading at March levels (below 3,150) in early July, then retesting February levels (above 3,350) in late July.
“This brings the STI’s total return over the first seven months of 2023 to 6.5%’’ said SGX Research.
“Seatrium led the STI constituents in July, gaining 12.8% while booking the highest net institutional inflow for the month at S$75.4 million. Keppel Corp was the STI’s second strongest performer in July and reported its highest profit on record in its 55-year history which was underpinned by the S$3.3 billion disposal gain from the divestment of the O&M business’’.
It added that for the month. the Singapore stock market booked net institutional outflow in the vicinity of S$220 million, bringing the total net institutional outflow for the past seven months to S$2.9 billion.
S’pore’s PMI edged up in July but still in contractionary mode
Singapore’s Purchasing Manager’s Index rose 0.1 point in July to 49.8, posting a slower contraction than June’s 49.8 reading. A PMI below 50 indicates contraction from the previous month, while one above 50 indicates growth.
The Business Times quoted DBS economist Chua Han Teng saying the latest data, which marks the fifth consecutive month of contraction, “reflected a stabilisation in factory sentiment’’.
The lynchpin electronics sector’s PMI improved by 0.3 point to 49.3, although it was the 12th consecutive month of contraction. OCBC chief economist Selena Ling noted that the readings aligned with recent business expectation surveys which showed slight improvements in the outlook for electronics and overall manufacturing.
Proxy advisers recommend saying no to proposal to internalise Sabana’s manager
Proxy advisers Glass Lewis and Institutional Shareholder Services (ISS) have recommended that unitholders of Sabana Industrial REIT vote against the resolution to internalise the REIT’s management function at the extraordinary general meeting (EGM) on Monday, 7 August.
However, they differed in their recommendations on the first resolution to remove the current manager Sabana Real Estate Investment Management or SREIM. Glass Lewis was against the proposal whilst ISS was in favour of it.
The EGM had been requisitioned by activist investor Quarz Capital on the grounds that internalising the manager would provide cost savings which would benefit unitholders.
ISS agreed with the first resolution to remove the manager because of “governance flaws raised against SREIM and the weak performance delivered by Sabana REIT’’, noting that ESR Group wholly owns both SREIM and the manager of ESR-Logos REIT.
“Sabana REIT and ESR-Logos REIT operate in the same sector, and both have overlapping investment mandates, which could potentially see them competing with one another’’ said ISS, adding that Sabana has “barely grown’’ in the past five years when compared to its peers such as CapitaLand Ascendas REIT and Mapletree Logistics Trust.
However, it called the strategy to internalise the manager “highly uncertain’’ adding that Quarz has not proven the advantages of having an internal manager nor has it “introduced a new strategy on how the internal manager would improve performance and financial results’’.
Glass Lewis on the other hand, said Sabana may be lagging industry peers on some metrics but this could be attributed to the fact that Sabana is significantly smaller in terms of market capitalization and total assets.
“Our findings suggest that the trust has been outperforming its peers in terms of total unitholder returns over various short-, medium- and long-term periods’’ which led it conclude there is insufficient evidence to warrant the removal of an external manager or for the internalisation of the management function at this time.
DBS reported 48% jump in Q2 profit to record S$2.69b
DBS on Thursday reported a 48% jump in net profit for its second quarter ended 30 June to a record S$2.69b as higher interest rates continued to lift its margins and wealth management and card fees also rose. The net profit figure beat the S$2.41b that analysts had forecast.
The Board has declared a S$0.48 dividend per share for Q2, an increase of S$0.06 from the previous quarter. In total, the first-half dividend amount to S$0.90 per share.
DBS’ net interest margin (NIM), a key profitability gauge, rose for the sixth consecutive quarter to 2.16% during the quarter from 1.58% a year earlier.
Return on equity hit a new quarterly high of 19.2%, up from 13.4% the same quarter a year ago.
Wealth management fees rose 12% to S$377m from higher bancassurance and investment product sales whilst card fees were up 17% to S$237 from higher spending, including for travel.
DBS’s shares fell S$0.08 to S$33.76 on volume of 3.7m on Thursday after the results were released. On Wednesday when the STI recorded its largest loss for the week when it fell about 49 points or 1.45%, DBS led the decline with a S$0.56 or 1.63% drop to S$33.84 on turnover of 4.3m.
However, DBS rebounded strongly on Friday, gaining S$0.49 at S$34.25.
OCBC reported a 34% rise in Q2 net profit to S$1.71b
On Friday, OCBC reported a 34% rise in net profit for its 2Q to S$1.71b and said it is likely to deliver a stronger NIM for 2023 but will stay prudent as the global growth momentum is expected to slow, heading into 2024.
CEO Helen Wong, who had previously guided that NIM would be 2.2%, said she now expects NIM to be above 2.2% and possibly stable around 2.26%.
The net profit of S$1.7b was slightly below analysts’ forecast for a figure of S$1.8b.
OCBC declared a dividend of S$0.40 per share. On Friday, OCBC’s shares lost S$0.10 at S$12.94 on volume of 9.3m.
Selected earnings in brief
CapitaLand Integrated Commercial Trust (CICT) reported a 1.5% increase in distribution per unit (DPU) for its first half ended 30 June to S$0.053 versus the same period in 2022. Gross revenue rose 12.7% to S$774.8m mainly due to contributions from CICT’s acquisitions of CapitaSky and its Australian portfolio, as well as increased rental income from most of its Singapore properties. Net property income grew 10.1% to S$552.3m and distributable income was up 1.7% to S$353.2m. The distribution will be paid on 15 Sep.
First REIT reported a 6.1% fall in DPU to S$0.0124 for its first half ended 30 June versus the same period last year mainly due to higher financing costs, currency translation and a one-off increase in units that came after the REIT issued 431.1m new units in March 2022 to partially fund the purchase of 12 nursing homes in Japan. Rental income rose 0.4% to S$54m whilst net property and other income dipped 0.6% to S$52.4m. Distributable income was up 1% to S$25.5m. A DPU of S$0.0062 for the second quarter will be paid on 25 Sep. DPU for the first quarter which was also S$0.0062 was paid on 26 June.
Investing with Insight: Watch this Week’s Technical Outlook