Date: July 29, 2024
- Nasdaq on Wed suffered its worst one-day plunge since Oct 2022
- Resultant pressure here on Thursday meant the STI fell 0.6% for the week
- Investors in US said to be rotating out of tech into other sectors
- Signs emerging that rally here may be broadening
- Latest US data shows inflation fight is on target
- Fed expected to keep rates unchanged next week and cut in Sep
- On the agenda this week: FOMC meeting, earnings from tech giants
- MAS proposed new REIT leverage guidelines
STI’s plunge on Thursday meant a net 0.6% loss for the week at 3,426.47
The main feature of trading in stock markets last week was the midweek selloff suffered by US tech stocks that was said to be in line with a rotation into other sectors.
Nasdaq on Wednesday fell 3.6%, its worst one-day loss since Oct 2022, taking with it the Dow Jones Industrial Average and S&P 500 which closed 1.3 and 2.3% lower respectively that day.
Although Wall St managed to regain some stability in the ensuing sessions, the 30-points which the Straits Times Index lost on Thursday following the US market’s Wed plunge meant that for the week the STI recorded a nett 21-points or 0.6% fall to 3,426.47.
Over in the US, the S&P 500 fell 0.8%, while the tech-heavy Nasdaq Composite slipped -2.1%. The blue-chip Dow Jones Industrial Average however, climbed 0.8%.
Friday’s trading here hinted at the local market experiencing a rotation of its own – thanks mainly to weakness in the three banks the STI closed lower, but the overall market registered 349 rises against only 186 falls.
Within the index, Yangzijiang Shipbuilding stood out – a large S$0.20 or 8.3% surge on Friday to S$2.60 meant that for the week the China-based firm gained S$0.29 or 12.6%.
Latest US data shows inflation fight is on target
The US personal consumption expenditures, or PCE, price index—the Federal Reserve’s preferred inflation measure—rose less than 0.1% in June. Its 2.5% rise from a year ago is closing in on the Fed’s 2% annual target.
Meanwhile, recent months’ labour-market data have shown a continued normalization from the overheated levels seen in much of 2022 and 2023. Hiring has continued apace, but the unemployment rate has ticked up from a half-century low to 4.1% in June, and job openings have declined.
“The key question now is whether the positive momentum we’ve seen over the last three months will be disrupted heading into the September Fed meeting,” wrote Olu Sonola, head of U.S. economic research at Fitch Ratings, on Friday. “With one eye on recent labor market developments, the Fed is now likely to use the meeting next week to set the stage for a September rate cut’’.
Fed expected to keep rates unchanged this week and cut in Sep
As of Friday, the probability of a rate cut at this week’s Federal Open Markets Committee meeting is only 4.5%. However, this rises to almost 100% for the September meeting.
On the US earnings front: Apple, Amazon, Microsoft and Meta
Apart from the FOMC meeting, Wall St will also be faced with the latest earnings from notable companies such as Microsoft, Procter & Gamble, Pfizer, Meta Platforms, Amazon and Apple. Friday’s jobs report will also be closely scrutinised.
MAS proposed new REIT leverage guidelines
The Monetary Authority of Singapore (MAS) last week proposed to subject all S-REITS to a minimum interest coverage ratio (ICR) threshold of 1.5x and an aggregate leverage limit of 50%.
According to the regulator, the leverage limit, together with the ICR floor, will continue to foster prudent borrowing by the sector.
MAS is also proposing to require REITs to perform and disclose sensitivity analyses on the impact of changes in earnings before interest, tax, depreciation and amortisation or EBITDA and interest rates on REITs’ ICRs in their interim financial results and annual reports.
The interest rate sensitivity analysis should include at least one scenario, assuming a 10% decrease in EBITDA and a 100 basis points increase in interest rates.
In response, Maybank said it views the proposals positively as it will simplify leverage requirements, bring uniformity across disclosures, and give REITs with low ICRs/high gearing the headroom to navigate higher rates and/or lower asset values/income while exercising prudence. However, the broker maintained its “neutral’’ stance towards the sector.
Selected earnings in brief
Sabana Industrial REIT posted a distribution per unit (DPU) of S$0.0134 for the first half of its fiscal year ended Jun 30, down 16.8% from the corresponding year-ago period. Gross revenue for H1 slipped 0.2% on year to S$55.2 million, even as its overall portfolio occupancy slid to 78.8% from 93.9% a year ago. This was mainly due to the repossession of 33 and 35 Penjuru Lane in March, and 30 and 32 Tuas Avenue 8 in June, with the master tenant having been placed under creditors’ voluntary liquidation, the manager said.
OUE REIT reported a DPU of S$0.0093 for the first half of its fiscal year ended Jun 30, down 11.4 per cent. This is even as its revenue and net property income (NPI) for the six-month period rose. Revenue grew 5.7% year on year to S$146.7 million. NPI also increased 1.6% to S$117.1. The manager attributed the Reit’s improved performance to the resilience of Singapore commercial properties and higher hospitality sector contributions. “The benefits of a diversified Singapore-centric portfolio were evident in H1 2024,” said Han Khim Siew, chief executive officer of the manager. But accounting for increased finance costs, higher retention for working capital, and the payment of base management fees fully in cash, the amount available for distribution in H1 2024 was S$48.8 million – down 15.3%.
Mapletree Logistics Trust’s (MLT’s) DPU fell 8.9% to S$0.02068 for its first quarter ended Jun 30. MLT’s manager reported a fall in revenue to S$181.7 million in Q1 FY2025, from S$182.2 million in the year-ago period. This was mainly due to weaker performance in China, the absence of revenue from divested properties, and currency depreciation of the yen and renminbi. Net property income declined 0.9% to S$156.7 million in Q1 FY2025. The fall was mitigated by higher contributions from the trust’s Singapore and Hong Kong properties, and acquisitions completed within the quarter.
Digital Core REIT reported a 6.3% fall in DPU to US$0.018 for the first half of 2024. The data centre REIT’s manager announced that revenue for the same time period fell 9.6% to US$48.3. NPI for H1 2024 fell in tandem to US$30.4 million, down 13.4%. The fall in revenue and NPI was largely driven by the divestment of two properties in Silicon Valley in January 2024. Distributable income to unitholders rose 5.1% in H1 2024 to US$22.6 million. DPU was lower due to the higher unit base from the private placement announced in February 2024, which raised US$120 million at US$0.625 per unit. The DPU comprises an advanced DPU of US$0.0048 which was paid on Apr 4, with the remaining DPU to be paid on Sep 20 for unitholders of record as at Aug 1.
Mandarin Oriental saw its net loss narrow to US$52 million for the six months ended Jun 30, 2024, from US$69.2 million in the year-earlier period. Group revenue per available room was up 5 per cent year on year, with positive growth charted in all regions, said the hotel investment and management group. This was driven by both occupancy and rates in Asia, continued strength in leisure demand and occupancy in Europe, the Middle East and Africa, and growth in corporate occupancy in the US. The combined total revenue of hotels under management in H1 2024, at US$979.5 million, marked an 11.1% increase. Combined total revenue growth, excluding new hotels and re-openings, was 5% but consolidated H1 revenue slid 3.8% to US$250.9 million, due to disposals of hotel properties in Jakarta and Paris.
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