Monthly Market Wrap: A tough month for stocks with the STI down 4.2%

Date: September 4, 2023

  • Fitch downgrade of US Govt debt kicked off a difficult month for stocks
  • A spike up in the 10-year US Treasury yield brought pressure to bear
  • The STI bottomed at 3,154 and closed at 3,233.30, down 141 points or 4.2% for the month
  • Despite signs that inflation is still present, probability of Fed staying put in Sep is now 93%
  • China’s economic and property problems weighed on sentiment
  • Singapore’s market cap fell 4.8% in Aug
  • In 3 weeks to 25 Aug, Singapore stocks recorded net institutional funds inflow: SGX Research
  • Shallower Manufacturing Contraction in July


A weak start for the month as US bond yields spiked up

The month started off with markets under pressure after Fitch Ratings Agency downgraded US Government debt, a move that sent US Treasuries tumbling whilst pushing up yields – the 10-year Treasury yield rose 0.029 percentage point to 4.077%, its highest yield since November.

In the third week, minutes of the July US Federal Open Markets Committee (FOMC) meeting were released, showing that the Fed saw “significant upside risks to inflation’’, leading to more pressure on US Treasuries. The 10-year Treasury then yield spiked up to 4.29%, the highest since 2008 before closing out the month at 4.11%.

The STI fell to a month-low of 3,154 before closing at 3,233, a net loss of 4.2%

On Monday, 21 Aug, the Straits Times Index (STI) which started the month at 3,373.98, sank to 3,154.03, its lowest closing for the month.

However, the month ended on an upbeat note as US economic data showed a slowing economy, which in turn suggested that the US Federal Reserve could soon be nearing the end of its rate hiking cycle – on Tuesday last week, came news that the number of job openings dropped unexpectedly in July and consumer confidence fell at a faster rate than expected in August.

On Wed came news that US GDP growth grew at a 2.1% annualised pace in the April-June quarter, which was lower than the 2.4% reported in July.

This led to a late bounce for stocks that took the STI up 44 points in the final week’s trading to 3,233.30. This cut the index’s loss for the month to 140.68 points or 4.2%.

Probability of a rate hike in Sep fell to 7% after earlier rising to 19.5%

By the 3rd week of the month, the futures market had started to price in a higher chance of a rate hike in the September FOMC. The probability that US interest rates would be raised in Sep started the month at 11% but peaked at 19.5% on 25 Aug.

However, by the end of the month, this had fallen to 7%, which means that the futures market is pricing in an 93% chance that the Fed will keep rates unchanged at 5-5.25%.

This came on Friday, after news that the U.S. economy added 187,000 jobs in Aug, marking the strongest pace of job gains for the summer after June and July figures were revised downward significantly.

That brought the three-month average in job gains to 150,000, materially below the roughly 190,000 jobs added each month, on average, in the year that ended in February 2020, just before the pandemic hit.

Also, the unemployment rate rose to 3.8%, a statistically significant increase from July’s 3.5% level.

The increase in the unemployment rate is considered good news, as it reflects a 0.2 percentage-point increase in the labour-force participation rate, or the share of people either employed or looking for work. It also signals a decline in labour-market tightness, which the Federal Reserve has long wanted to see as it works to tamp down inflation.

China’s economic and property problems weighed on sentiment

China released weak economic data that raised concerns that its problems could weigh on global growth.

In its latest global economic outlook, the International Monetary Fund said China is “losing steam” and noted that its labour market and real estate sector are facing steep challenges.

The slide in the consumer and producer price indexes spurred comparisons with Japan, and speculation that China, too, will enter a period of prolonged deflation. In China’s case, however, the pain might be worse, given growing trade restrictions and the country’s significant debt load.

Also in August, property developer China Evergrande filed for bankruptcy protection in the US whilst at the end of the month, rival developer Country Garden Holdings warned that it may default on its debt and raised concerns about staying in business after reporting a record first-half loss of almost US$7 billion.

Country Garden said that if its financial performance continues to deteriorate, the group might not be able to meet its debt obligations, “which may result in default”, according to a filing on Wednesday, 30 Aug.

The developer also cited “material uncertainties” that may cast “significant doubt on the group’s ability to continue as a going concern”.

China unexpectedly lowered several key interest rates in a bid to shore up struggling activity, but analysts say moves so far have been too little, too late, with much more forceful measures needed to stem the economy’s downward spiral.

Singapore’s market cap fell 4.8% in Aug

The total value of the 622 companies listed on the Singapore Exchange fell 4.8% in August to S$800.8b. The market cap of the 30 SSTI stocks was down 4.2% to S$536.8b, roughly 67% of the whole market.

Yangzijiang Shipbuilding posted the largest gain, adding S$595.4m whilst NIO recorded the biggest loss, dropping S$10.7b. This was followed by Singtel, which lost S$4.62b and OCBC, UOB and DBS, which respectively lost S$3.39b, S$2.8b and S$2.5b.

News in Brief

Unitholders of Sabana Industrial Real Estate Investment Trust (Sabana REIT) voted at an extraordinary general meeting (EGM) that had been requisitioned by activist investor Quarz Capital to remove external manager Sabana Real Estate Investment Management (SREIM) and kick off the process of internalising the REIT’s manager.

Airline handling agent and air cargo firm Sats reported a net loss of S$29.9m for its first quarter ended 30 June. The net loss for the same period last year was S$22.5m. Sats said the higher figure was due to one-off costs related to the integration of Worldwide Freight Services (WFS) which was bought in April. Most brokers maintained positive recommendations on the stock.

Singtel reported a 23.1% fall in net profit to S$483m for its first quarter ended 30 June versus the same period last year. The drop was mainly due to a net exceptional loss of S$88 million, compared with a net exceptional gain of S$129 million observed in the first quarter of FY2023. DBS Group Research, UOB Kay Hian (UOBKH), Maybank Securities and RHB Bank Singapore kept their “buy” calls on Singtel at unchanged target prices, whilst CGS-CIMB Research maintained their “add” call at a lowered target price.

Shareholders of Asti passed resolutions at an extraordinary general meeting (EGM) whose validity is being disputed by the firm to replace the entire board with five new directors. The EGM had been requisitioned by four shareholders of the watch-listed semiconductor company. The matter is now before the Courts.

IHH Healthcare reported a 51% drop in net profit to RM301.8m for its second quarter ended 30 June due to a “high base last year’’ when it had exceptional gains. Revenue was up 7% to RM4.7b and the board has declared an interim dividend of 3.5 sen per share to be paid on 27 Oct. In a separate announcement, the company said chief operating officer Joe Sim has resigned to return to the public service and will be replaced by Dr Prem Kumar Nair, currently chief executive of IHH Healthcare Singapore.

Guocoland reported a 54.5% drop in net profit to S$148m for the half-year ended 30 June despite recording a 72.2% increase in revenue to S$882.9m. The property company said the absence of fair-value gains on interest rate hedges in FY2023 resulted in other income falling by 51% to S$161m for the period whilst finance costs rose 64.7% to S$89m, placing further pressure on profits. A final dividend of S$0.06 per share has been proposed.

In 3 weeks to 25 Aug, Singapore recorded net institutional funds inflow: SGX Research

In a 28 Aug Market Update, SGX Research said Singapore stocks have booked net institutional fund inflow for three consecutive weeks ending 25 August.

“Last week’s inflow of about S$150 million, brings the August month-to-date inflow to S$440 million. With four trading sessions for the month remaining, August is poised to be the first month local stocks have booked net inflows since Nov 2022’’.

SGX Research said five ASEAN Banks that are also among the 10 largest weights of the FTSE ASEAN Extended 60 Index and averaged 0.4% total returns in SGD terms in the month-to-date.

“This may have also prompted institutional investors who frequently rebalance, to net buy the STI banks, in order to maintain required country weights in regional portfolios’’ said SGX Research.

“At the same time, the past four weeks have seen the Refinitiv consensus estimate target prices on the SGX stock screener raised for each of the three banks. According to Refinitiv, DBS, UOB and OCBC currently maintain respective consensus estimate target prices of S$37.55, S$32.35 and S$14.33’’.

For the month, DBS lost S$0.96 or 2.8% at S$33.30, UOB fell S$1.66 or 5.5% to S$28.44 and OCBC dropped S$0.75 or 5.6% to S$12.55.

Shallower Manufacturing Contraction in July

Manufacturing brightened in July, with expansions seen across electronics, chemicals and transport engineering. Industrial production fell by 0.9% from a year ago in July, a much shallower decline than 6.6% in June and the smallest decline since Oct 2022.

Maybank said the improving manufacturing data marks an encouraging start to the third quarter and comes despite a deterioration in July’s real non-oil domestic exports (NODX) in both year-on-year and seasonally-adjusted month-on-month terms.

“The front-running of production suggest that manufacturers are turning more optimistic on the demand outlook. EDB survey data released in end-July showed that a higher proportion of manufacturers…are optimistic about prospects for the next six months… with more firms expecting improved conditions ahead and less anticipating a worsening of business conditions’’.

We maintain our GDP growth forecast at +0.8% in 2023 and +2.2% in 2024. We expect a modest manufacturing recovery in the fourth quarter, reducing the risk of a recession and raising prospects for a growth uplift in 2024’’ said Maybank.

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