Markets remain resilient in face of rising Middle East tensions

Date: October 7, 2024

• Iran’s attack on Israel caused a mid-week wobble on Wall St
• Despite oil prices shooting up, US stocks and bonds stabilised
• The STI eventually closed with a 0.4% rise to 3,589.13
• All 3 major US indices posted weekly gains
• US jobs report was strong; market now expects only 25-pts rate cut next
• Key US inflation reports due to be released this week
• Retail investors were net sellers in September: SGX Research
• STI generated 31% return since 2019: SGX Research
• Manufacturing in Sep improved
• Sabana REIT’s EGM to vote on directors for internal manager scheduled for 18 Oct

 

Iran’s attack on Israel caused a mid-week selloff

Markets last week suffered mid-week wobble after Iran fired a barrage of missiles at Israel on Tuesday, prompting the price of oil to rise and stocks to fall. However, as the week progressed, all markets recovered, led by Wall Street which ended the week on a firm note after release of a strong jobs report.

The Straits Times Index tracked these developments closely, weakening on Tuesday and Thursday, but those falls were not enough to prevent the index from recording a 16-points or 0.4% rise for the week to 3,589.13.

Daily volume ranged between a high of S$1.94b done on Monday to Thursday’s week-low of S$1.3b. The average done per day was S$1.6b, the same as the week before.

Iran’s attack on Israel caused a short-lived wobble; oil prices remained elevated

The attack did minimal damage but employed roughly twice the number of ballistic missiles as a similar Iranian strike on Israel in April, according to the Pentagon.

The immediate market response to the news that Iran was preparing to attack looked like a classic geopolitical shock. The price of oil rose by 4% to more than US$75, the S&P 500 lost 1.2% and the 10-year U.S. Treasury yield fell by 1.5% as investors bought up the safe-haven asset, raising bond prices.

Although oil prices remained elevated, US stocks recovered as the week went on. For the week, the S&P 500 added 0.2%, while the Nasdaq Composite gained 0.1%. The blue-chip Dow Jones Industrial Average also rose 0.1%.

WTI crude oil futures surged more than 9% for the week, while the S&P 500 energy sector was the best-performing sector of the week.

Should the conflict further escalate, limiting output by key petroleum-producing countries in the region, higher energy prices could also impact inflation figures, with possible implications for the Fed’s planned rate reductions for the remainder of the year and beyond.

US jobs report was strong; market now expects only 25-pts rate cut next

The data released Friday morning by the Bureau of Labor Statistics indicated that U.S. job market is healthy: employers added 254,000 jobs in September, way above the 140,000 forecast on FactSet. The agency also announced revised, higher values for July and August.

The numbers compelled investors to reassess the trajectory of interest rates: if the labor market is strong, then the Federal Reserve may not need to cut interest rates as significantly.

Bank of America lowered its call for a November rate cut to 25 basis points from 50 basis points. Traders are now nearly certain that the Fed’s next move will be a quarter-point reduction, with only a small number of traders even expecting a pause, according to the CME Fed Watch tool. Deutsche Bank said “the Fed is likely to put more weight” on this solid September labor data heading into its upcoming policy meeting, given recent weather disruptions can impact some of the economic data over the next month.

According to the CME FedWatch Tool, the futures market is pricing in a 93% chance that the November rate cut will be 25 basis points.

Up this week – key US inflation reports

Apart from several key earnings announcements, it will also be a key time for the Fed. Two inflation readings–the consumer price index and the producer price index, which will be released Thursday and Friday, respectively will offer a good view into how much prices have gained both for consumers and businesses.

Retail investors were net sellers in September: SGX Research

In a 1 Oct Market Update, SGX Research said in 3Q24 retail investors net sold S$955 million shares of Singapore stocks, with the bulk of the net outflow booked in September.

“The STI generated an 10% total return in 3Q24, with the iEdge SG Manufacturing Index and iEdge S-REIT Index in tandem generating respective total returns at 14% and 17%’’ said SGX Research.

“The 10 Singapore stocks that booked the most net retail outflow in 3Q24, averaged 17% gains for the quarter, bringing their average nine month total returns to 19%. Meanwhile, the 10 stocks that booked the most net retail inflow in September averaged just 2% gains for 3Q24, in addition to 2% total returns for the nine months’’.

It added that the five stocks most net sold by retail investors in the third quarter were Singtel, SGX, SATS, UOB and Suntec REIT, whilst the five most bet bought were YZJ Shipbuilding, SIA, Keppel, Genting and UMS.

“During 3Q24, the STI generated a 9.9% total return, bringing its nine month total return to 16.1%. This compared to 3Q24 and nine month total returns of 11.9% and 13.5% for the FTSE ASEAN All-Share Index, 5.0% and 17.0% for the FTSE APAC Ex-Japan Index and 4.0% and 15.3% for the FTSE Asia Pacific Index’’ said SGX Research.

STI generated 31% return since 2019: SGX Research

In a 3 Oct Market Update, SGX Research said since 2019, the STI has generated a 37% total return, outpacing the FTSE APAC Index 31% total return and FTSE APAC Ex-Japan Index 28% total return.

The Index also maintains a 5.0% trailing dividend yield, doubling the 2.4% for the FTSE APAC Index and 2.5% for the FTSE APAC Ex-Japan Index said SGX Research.

“The composition of benchmark Indices such as the STI change over time to reflect the largest and most actively traded stocks of the exchange. This in itself provides a form of a passive, market following investment strategy subject to the usual market risks’’ said SGX Research.

“For instance, at the end of 2019, the trio of DBS Group Holdings, Oversea-Chinese Banking Corporation and United Overseas Bank have seen their STI weighting expand from 39.7% to 50.2%. Over this period of time, the trio averaged 80% total returns’’.

“Other STI stocks that have also performed strongly since 2019 include Sembcorp Industries (+445%), Yangzijiang Shipbuilding (+420%) and Keppel (+91%). Beyond the STI, Samudera Shipping Line (+965%), iFAST Corporation (+641%), PropNex Holdings (+327%), Dyna-Mac Holdings (+287%) and Geo Energy Resources (+250%) led the FTSE ST All-Share Index from end of 2019 through to 3Q24’’.

Manufacturing in Sep improved

Singapore’s overall manufacturing sentiment improved further in September, even as regionwide factory activity remained weak.

The purchasing managers’ index (PMI) improved slightly to 51 in September, a 0.1 point gain from the month before, data from the Singapore Institute of Purchasing and Materials Management (SIPMM). A reading above 50 on the index indicates growth from the previous month, and one below 50, a contraction.

The reading of 51 marked the 13th month of expansion for the overall manufacturing sector and is the highest reading since July 2021, boosted by a firm recovery in the linchpin electronics sector.

This sector also grew faster in September, gaining 0.2 point to 51.5 – the highest reading since August 2018.

SIPMM director Stephen Poh said: “The latest PMI readings indicate resilience in the manufacturing sectors, despite uncertainties in the major economies and continuing geopolitical risks of the global environment.”

Sabana REIT’s EGM to vote on directors for internal manager scheduled for 18 Oct

Sabana Industrial Real Estate Investment Trust (Sabana REIT) will convene a requisitioned extraordinary general meeting (EGM) on Oct 18 to vote on proposed internal manager directors proposed by the trustee and five unitholders who requisitioned the manager on Aug 12 to convene the meeting, at which six candidates were nominated to be voted on.

The six include consultant Lim Hock Chuan, corporate finance and investment professional Bhavik Umesh Doshi, and group chief financial officer and board member of investment company Volare Group Konrad Duttwiler.

The other three are activist investor Quarz Capital’s founder Jan Moermann and director Havard Chi, as well as Saha Anshuman Manabendranath, who previously worked at IT consulting company Pan Asia Resources.

The trustee’s candidates are independent real estate and investment consultant Dr Chew Tuan Chiong, New Financial Holdings’ managing director of asset management Jimmy Chan, and independent adviser Sandip Talukdar.

If none of the resolutions were passed, the board of the new internalised manager cannot be formed, noted the REIT manager.

Investing with Insight: Watch this Week’s Technical Outlook

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