Hopes that the Fed will soon be done lifted Wall St, enabling the STI rebound strongly, led by the banks

Date: July 31, 2023

  • The Straits Times Index jumped 93 points or 2.8% to 3,371.17
  • The rally came in tandem with sharp rises on Wall St
  • Underpinning gains were hopes that the US Fed will soon be done with raising rates
  • Spike up in US Treasury yields on Thursday ended the Dow’s 13-day winning streak
  • Local banks led the rally here ahead of their 2Q results
  • UOB reported a 27% rise in 2Q net profit to S$1.42b
  • SIA reported 98.4% surge in 1Q net profit to record S$734m


Stocks rallied on hopes that the Fed’s work is nearing completion

Although the US Federal Reserve left the door open to another rate hike in September, Wall St extended its recent rally, taking with it the Straits Times Index, which gained a net 93 points or 2.8% over the week at 3,371.17.

Average daily volume was S$1.17b, boosted by the S$1.63b that was done on Friday. Most of this came from trading of the banks – the combined value traded on Friday of the banks amounted to S$614.7m or 38% of the entire market’s volume.

After Wednesday’s Federal Open Markets Committee meeting at which the Fed delivered the widely-expected 25-basis points hike to take interest rates to their highest level in 22 years, Fed chair Jerome Powell said “It is certainly possible that we would raise funds again at the September meeting if the data warranted’’.

However, he also added “And I would also say it’s possible that we would choose to hold steady at that meeting’’.

Although the message was that anything is still possible, markets chose to believe that even if there is one more hike, the Fed’s rate hikes should be ending very soon.

Whatever the case, the STI’s regaining of the 3,200 level on 13 July and then 3,300 just nine trading days later on Wednesday last week will go some way towards satisfying those bullish on the local market’s prospects.

A spike up in Treasury yields on Thursday ended the Dow’s best run since 1987 – but all US indices still posted a weekly gain

The Dow Jones Industrial Average rose for 13 consecutive sessions before sliding sharply on Thursday last week, a fall that ended the index’s best run since 1987.

Earlier in the day, news emerged that US gross domestic product grew more than expected, while lower weekly jobless claims indicated continued strength in the U.S. jobs market, suggesting the Fed still has more work to do.

The yield on the 2-year US Treasury jumped 11.4 basis points to 4.939% and the yield on the 10-year Treasury soared 16.1 basis points to 4.011%.

Also, the European Central Bank raised interest rates by a quarter-point as expected, mirroring the decision made by the Fed on Wednesday.

On Friday though, the Dow finished up 177 points, or 0.5%, while the S&P 500—marking a 52-week high— climbed 1%, and the Nasdaq Composite gained 1.9%. The indexes posted weekly gains of 0.7%, 1%, and 2%, respectively.

Banks were in play because of 2Q results, UOB was the first

Most of the play within the index was on the Jardine group and the banks, the latter because of the release or impending release of their second quarter results.

The first to do so was UOB on Thursday, which reported a 27% in net profit to S$1.42 billion versus the same period in 2022. The earnings were in line with the S$1.43 billion forecast by analysts in a Refinitiv poll.

It included one-off expenses related to its acquisition of Citigroup’s Malaysia, Thailand and Vietnam consumer banking business. Excluding these, core net profit came in at S$1.51 billion, representing a 35% increase from the same period in 2022.

Net interest income rose 31% to S$2.44 billion, led by a 45 basis point expansion in net interest margin (NIM) – a key gauge of a lender’s profitability – to 2.12%.

The bank declared an interim dividend of S$0.85 a share, up from S$0.60 in the same quarter in 2022. This represents a payout ratio of about 49%.

Maybank said trading income was a major driver for UOB, but near term sustainability at current levels is uncertain.

“On the other hand, a higher rate environment should support higher for longer NIMs, especially as funding competition moderates. The strong signal from bigger interim dividends is welcome. However, growth risks are stacked on the downside until clarity emerges from a revival in China. We raise target price to S$30.86. Maintain HOLD’’ said Maybank.

Over the course of the week, UOB gained S$1.27 or 4.4% at S$29.89.

Selected earnings in brief

Singapore Airlines (SIA) reported a 98.4% jump year-on-year in net profit to S$734 million for the first quarter ended 30 June, the highest quarterly performance in its history. This was mainly attributable to better operating performance, a net interest income versus a net finance charge last year, and a share of profits versus a share of losses of associated companies last year, all of which partially offset this year’s higher tax expense, said SIA. Revenue rose 14 per cent year-on-year to S$4.5 billion.

CGS CIMB issued a “reduce’’ call on SIA with a S$6.78 target price, largely because of rising fuel costs. “We estimate that every US$1 per barrel increase in jet fuel will negatively impact our FY2024 forecast net profit by 2%…also, SIA’s legacy fuel hedges all expired at end-June 2023…’’ The broker also warned that SIA’s expensive valuations could expose investors to de-rating catalysts such as intensifying competition from other airlines, particularly during the next financial year. SIA’s shares ended the week at S$7.58.

Seatrium reported that its net loss for its first half ended 30 June widened to S$264.4m versus S$142.9m last year because of provisions arising from its combination with Keppel O&M. Without those provisions, the net loss would have been S$33m. Revenue rose 163.5% to S$2.9b, with most of the contributions coming from the group’s rigs and floaters, repairs and upgrades, offshore and platforms and specialised shipbuilding segments. However, finance costs nearly trebled from S$54.6m to S$158.7m whilst general and administrative costs rose from S$58.4m to S$153.9m after factoring in the costs relating to the Keppel O&M acquisition.

Keppel Corp reported its highest profit on record in its 55-year history, underpinned by a S$3.3 billion disposal gain from the divestment of its offshore and marine (O&M) business. The group’s net profit for the six months ended Jun 30 rose to over S$3.6 billion, significantly higher than the S$498 million reported in the same period last year. Excluding its discontinued O&M operations in both periods, Keppel’s net profit attributable to shareholders of the company was S$445 million for the first half of 2023.

Fintech platform iFast reported a net profit of S$3.6m for its second quarter ended 30 June versus a loss of S$2.7m for the corresponding quarter last year. Net revenue for the quarter rose 6.5% to S$31.8m and profit before tax from non-banking operations grew 62% to S$7.4m. However, its banking business reported a loss of S$2.2m. Assets under administration rose 8% to S$18.8 and an interim dividend of S$0.011 has been declared.

Parkway Life REIT reported a 3.3% increase year-on-year in distribution per unit (DPU) to S$0.0729 for the first half ended 30 June. Gross revenue grew 23.6% to S$74.4m mainly due to contributions from five Japanese nursing homes bought in Sep 2022, along with higher rent from its Singapore properties. Net property income was 25% higher at S$70.1m whilst distributable income was up 3.3% at S$44.1m. The distribution will be paid out on 30 Aug.

Suntec REIT reported a 27.7% fall in DPU to S$0.03476 for its first half ended 30 June from the same period last year, mainly because of a weaker Australian dollar and British pound. Gross revenue rose 10.2% to S$224.3m, mainly die to higher revenue from Suntec City, Suntec Singapore and The Minster Building. Net property income grew 0.3% to S$153.3m but distributable income fell 27.2% to S$100.5m. The distribution will be paid on or around 29 Aug.

Mapletree Industrial Trust reported a 2.9% drop in DPU for its first quarter ended 30 June to S$0.0339 compared to the same period last year. This follows a private placement in May which raised gross proceeds of S$204.8m and led to an increase in the number of units in issue. Gross revenue was up 1.7% to S$170.6m and net property income rose 0.7% to S$130.8m. An advanced distribution of S$0.0248 per unit for the period 1 April to 5 June was paid on 6 July and the balance of S$0.0091 per unit will be paid at a later date.

Keppel DC REIT reported a 0.04% increase in DPU to S$0.05051 for its first half ended 30 June versus the corresponding period last year. Gross revenue rose 3.6% to S$140.5m and net property income increased 3.3% to S$127.4m. Distributable income however, increased by only 0.2% to S$91.3m because of higher financing costs, lower contributions from some Singapore assets due to higher facilities expenses, less favourable forex hedges and a lower government incentive sum for the REIT’s Guangdong investments. The distribution will be paid on 14 Sep.

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