Mini “taper tantrum” cut 2% off the STI

Date: August 23, 2021

  • The STI lost 2% at 3,102.75 after Wall St’s mini-taper tantrum;
  • This came after Fed minutes hinted that it would cut back on bond purchases sooner rather than later;
  • Wall St wobbled on Wednesday but recovered later;
  • All eyes on Jackson Hole next week when Fed boss Powell will deliver speech on US economy;
  • Nanofilm shares crash after latest results, resignation of COO

STI fell below 3,100 on Thursday but regained it on Friday

In addition to concerns over the impact of the fast-spreading Delta variant of Covid-19 on the global economic recovery, the local stock market last week fell victim to a “mini-taper tantrum’’ that caused the Straits Times Index to temporarily lose its grip on 3,100 when it closed at 3,086 on Thursday.

A slight rebound on Friday, however, saw the index close the week at 3,102.75 which limited its loss for the five days to 63 points or about 2%. Friday’s rise came after news that Singapore is cautiously moving to reopen its borders through the introduction of vaccinated travel lanes. Germany and Brunei are the first countries.

Among the notable local corporate developments were a selloff in shares of Nanofilm after news that its chief operating officer has resigned, a debut for waste management firm Shanaya on Catalist, SGX RegCo on Thursday ordering Kitchen Culture to appoint a special auditor and then on Friday ordering Astaka executive director and former CEO Zamani bin Kasim to resign from all his current positions for having caused the company to breach Catalist rules.

Taper tantrum again – but on a smaller scale

The term “taper tantrum’’ refers to the 2013 collective reactionary panic that triggered a selloff in stocks and bonds after investors learned that the US Federal Reserve – then under chairman Ben Bernanke – was aiming to slowly cut back on its quantitative easing (QE) program.

Last week, similar worries emerged after minutes of the latest Fed meeting suggested tapering of monthly asset purchases may start this year as most participants said the US central bank has hit its objective on the inflation prong of its dual mandate.

Currently, the Fed is buying US$120 billion of bonds—mostly long-dated Treasuries—each month. That has kept the price of those bonds high and their yields low, helping to keep borrowing costs down and enabling households and companies to easily access credit. Less money moving into the bond market would have the opposite effect, lifting yields and limiting borrowing, investment, and spending.

Put differently, worries that the Fed would taper or reduce its monetary injections which were supporting the economy and thus were helping support financial markets led to panic selling by investors.

To be fair, the content of the latest minutes should not have come as a surprise as Fed governors have actually been dropping hints in recent weeks that the beginning of the end of the central bank’s bond buying was nearing. “Most participants noted that …it could be appropriate to start reducing the pace of asset purchases this year,” the minutes read.

Wall Street threw a mini tantrum

Despite this being news which Wall St did not already know, the impact was similar to 2013’s taper tantrum though on a much smaller scale. The major US indices dropped sharply on Wednesday after release of the Fed minutes; however, the selling did not extend to the rest of the week.

A Friday rebound meant that for the five days the S&P 500 fell just 0.6%— a modest loss even if it was the index’s worst weekly performance since the week ended July 16. As for the Dow Jones Industrial Average, it lost 1.1%, ending a two-week winning streak.

Thus far, the S&P 500 has risen almost 100% since its 2020 closing low on March 23, 2020. The last time the S&P 500 gained 100% or more in a shorter period was 85 trading days ending July 18, 1933.

The Fed’s Jackson Hole meeting will be the main focus this week

Given the events of last week, all eyes will firmly be turned towards the Fed’s annual get-together at Jackson Hole, Wyoming which will feature a keynote address by chairman Jerome Powell. The event runs from Thursday to Saturday and Mr Powell’s speech is scheduled for Friday morning, US time.

Nanofilm comes under pressure after COO quit

Investors dumped shares of NanoFilm Technologies on Monday (Aug 16), sending its price down S$1.72 or almost 29% to S$4.25 on volume of 22m after news of the resignation of the company’s chief operating officer (COO), which was announced after the market closed the previous Friday.

They continued their freefall on Tuesday with a loss of S$0.43 or about 10% at S$3.82 before rebounding to S$3.96 on Wednesday and then S$3.99 on Friday.

Mr Tan’s resignation comes less than two months after chief executive Lee Liang Huang stepped down on June 22 due to health reasons.

The nanotechnology company last Friday reported a 2.3 per cent drop in net profit after tax to S$18.1m for the first half of the year due to expenses incurred at its new Shanghai plant, missing analyst expectations.

Revenue rose 24.2 per cent to S$96.6 million year-on-year, supported by the advanced materials and industrial equipment units.

Nanofilm makes high-tech carbon coating used in cars, smartphones and computers, and listed on the Singapore Exchange at S$2.59 a share in October last year, raising S$470 million.

At the results briefing, deputy chief executive Gan Yi Hsen said COO Ricky Tan’s departure would have minimal impact on the company’s operations. NanoFilm founder and executive chairman Shi Xu has assumed the role of interim chief executive.

Last month, NanoFilm shares hit an all-time high of S$6.53, a week after the company announced a joint venture with Temasek to develop hydrogen energy solutions.