Interest rate concerns, China’s slowdown drag STI first below 3,200 and then 3,150

Date: July 10, 2023

  • The STI lost 66 points or 2.1% at 3,139.47
  • Hawkish US Fed minutes set the tone for higher interest rate expectations
  • US jobs data dragged Wall St lower, probability of 25-basis points hike this month is now 92%
  • Latest data out of China showing a slowdown also dampened the mood
  • Government might allow SingPost to adjust postal rates
  • ICP to hold EGM on 26 July to vote on removal of directors
  • Despite poor first half, Singapore market has its attractions: analysts


The STI fell below 3,200 on Wednesday, then 3,150 on Friday

The Straits Times Index struggled to retain its grip on the 3,200 level throughout the week, holding on resolutely on to the mark on Monday and Tuesday but eventually succumbing on Wednesday.

The selling intensified on Thursday – in line with a large drop in the Dow futures which later translated into a 1.1% drop in the Dow Jones Industrial Average – resulting in a 1.1% loss for the STI that day that was led by the three banks, Singtel, Sembcorp and Keppel.

On Friday, hopes of some relief were dashed when the index opened lower and drifted to a third consecutive loss. For the week, the index fell a total of 66 points or 2.1% at 3,139.47. Daily volume averaged S$901m, dragged lower by the paltry $607m done on Tuesday.

Hawkish FOMC minutes dampened the mood

The main market-moving event was the release of the minutes of the June US Federal Open Markets Committee (FOMC) meeting. Although the FOMC opted to skip a rate hike at that meeting, the minutes suggested they aren’t likely to do so in July.

With inflation still well above the Fed’s 2% target rate, committee members believe maintaining a restrictive stance for monetary policy would be “appropriate” going forward.

“Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate,” according to the minutes.

The latest median forecast by FOMC members, released immediately after the June meeting, showed officials believe the federal-funds rate will hit 5.6% by the end of the year, up from the 5.1% expected in March, according to the Fed’s updated Summary of Economic Projections.

This implies the Fed could implement two more quarter-point boosts over the four remaining meetings slated this year.

US jobs reports further dampened spirits, 92% chance of rate hike in July

On Thursday, the Dow Jones Industrial Average fell about 366 points, or 1.1%. The S&P 500 fell 0.8%. And the Nasdaq Composite fell 0.8%. The 2-year Treasury yield jumped to 5.004%, its third-highest level of the year. The 10-year yield rose to 4.04%, its second-highest yield this year.

A hotter-than-expected ADP private-sector job growth report sent stocks and bonds lower. According to the CME FedWatch Tool, the probability that there will be a 25-basis points rate hike this month is now 92%.

On Friday, even though the June jobs report showed a cooldown from May, it wasn’t enough to send stocks higher and salvage the week.

For the week the Dow shed 2%, the S&P 500 slipped 1.2%, and the Nasdaq Composite declined 0.9%.

China’s economic news was another concern

Also weighing on sentiment was news that a private-sector survey showed that China’s services activity expanded at the slowest pace in five months in June, as weakening demand weighed on post-pandemic recovery momentum.

The Caixin/S&P Global services purchasing managers’ index (PMI) eased to 53.9 in June from 57.1 in May, the lowest reading since January when COVID-19 swept through the country after authorities ditched anti-virus curbs. The 50-point mark separates expansion from contraction in activity.

SPI Asset Management managing partner Stephen Innes said that Chinese policymakers are unlikely to sit idle and will likely “redouble policy efforts’’ to support domestic demand and boost confidence.

“Without policy support, there’s a risk that weakening growth expectations will become self-fulfilling’’ he said.

Government might allow SingPost to adjust postal rates

The Government will consider allowing SingPost to adjust postal rates “to better reflect the cost of letter mail business’’. This was announced my Minister of State for Communications Tan Kiat How in Parliament on Wednesday.

“Domestic postage rates have largely been held constant since 2014, apart from a small increase at the start of this year’’ he said.

“The upcoming adjustments will have to be of a sufficient degree to allow SingPost’s business model to remain viable, without requiring direct government funding’’.

The company later announced it would work with the Infocomm Media Development Authority to review its costs and operations.

In May, SingPost reported a 70.3% drop in net profit for its financial year ended 31 March 2023 to S$24.7m despite posting record revenue.

On Thursday, SingPost’s shares closed S$0.025 or 5.5% higher at S$0.48 but slipped back to S$0.475 on Friday.

ICP to hold EGM on 26 July to vote on removal of directors

Hotel management firm ICP Ltd will hold an extraordinary general meeting (EGM) on 26 July to vote on the removal of three directors. The EGM has been requisitioned by shareholder Ang Kong Meng who in his requisition notice said he owns a direct stake of 10.99% in ICP.

The first, second and third resolutions are to remove three directors, including chairman Tan Kok Hiang with effect from the date of the EGM. The fourth and fifth resolutions are to appoint two new directors, including Ang, from the date of the EGM.

Shareholders will also need to vote on the removal of any directors who were appointed between the date of the requisition letter and the EGM. The last resolution is for the company to cease diversification or capital or fund-raising activities beyond its businesses from the date of the letter.

ICP’s board said in a letter to shareholders that it does not recommended voting in favour of the resolutions.

Despite a poor half, Singapore market has its attractions

In a report that compared the performance of the STI against Wall Street, the Straits Times newspaper quoted IG Asia market analyst Yeap Jun Rong saying “Despite the new one-year high delivered from our US counterparts in the first half of this year, that strength has not been mirrored in the STI, with the year-to-date performance for the index still in negative territory’’, referring to the STI’s 1.9% loss between January to June.

Mr Yeap said riskier growth sectors such as technology were on investors’ radar in the first half on the back of speculation that the US Federal Reserve would taper the pace of its rate hikes. That momentum was further propelled by the growing hype around artificial intelligence, he said.

The Singapore stock market, with its high concentration of financial and property companies, could not enjoy the strong gains seen in bourses with a larger proportion of technology stocks and tech-related companies such as software, semiconductors and Internet companies, wrote OCBC Investment Research’s strategist Carmen Lee.

Mr Yeap said that the stock market’s performance in the second half of the year will depend on the economic state of Singapore’s trading partners such as the US and China as the local economy is heavily exposed to external demand.

Still, Ms Lee said there is a strong case to be made for local stocks, given government plans to support key industries and the strong level of investments into the country.

There has also been a pick-up in tourism arrivals and receipts, with several mega concerts by Jacky Cheung, Coldplay and Taylor Swift expected to give the industry a further boost.

Ms Lee added that current market valuations based on the STI are looking attractive and noted that STI stocks offer an attractive average dividend yield of 5.1 per cent, based on 2023 estimates.

She said Singapore’s safe-haven stocks could help to reduce the volatility in an equity portfolio. Some of her picks include CapitaLand Ascendas Reit, CapitaLand Ascott Trust, DBS Bank, UOB, Sats, Sheng Siong Group, Singtel and UOL.

Investing with Insight: Watch this Week’s Technical Outlook