Monthly Market Wrap: “Higher for longer’’ – the Fed’s stance on rates made for a dull trading month

Date: October 2, 2023

  • The STI lost 0.5% at 3,217.41 in a quiet trading month
  • US rate worries meant Wall St posted its worst monthly performance of the year so far
  • Latest US inflation data suggested 86% chance that the Fed will keep rates steady in Nov
  • Singapore’s factory output plunged 12.1% in August
  • SGX RegCo ordered Boustead Projects to delist – after making a fair and reasonable exit offer
  • Boustead Singapore applied for more time to provide suitable exit offer
  • EC World Reit to defer 1H distribution indefinitely
  • Creative’s shares were in play following Skyworth announcement


The STI fell 0.5% to 3,217.41 as US rate worries persisted

Over the course of the month, the Straits Times Index fell 16 points or 0.5% to 3,217.41, dancing to the tune of Wall Street where interest rate worries waxed and waned with every economic release and utterance by US Federal Reserve officials.

However, despite the release of mixed inflation data, it was the September Federal Open Markets Committee (FOMC) meeting which proved the month’s pivotal event.

After the meeting, at which the Fed kept its short-term interest rate unchanged as had been widely expected, it also made it clear that it is determined to bring inflation down to 2%.

The message from the FOMC was also that there would be no rate cuts this year, whilst its summary of economic projections indicated that officials expect only two rate cuts next year – fewer than the market had hoped for.

With Wall St displaying mainly disappointment over the Fed’s signals, it probably came as no surprise that trading here was muted, with daily volume rising above S$1b on only two days in the whole month. As such, average daily volume was an uninspiring $867m for the month.

In the week ended 29 Sep, the STI managed a 13 points or 0.4% rise. Average daily turnover for the week amounted to S$853m.

Major US indices posted their worst monthly performance for 2023 so far

Given the “higher for longer’’ message from the Fed, the Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite posted losses of 3.5%, 4.9%, and 5.8% for Sep respectively, the worst month of 2023 thus far.

Latest US inflation data didn’t help lift Wall St’s spirits

Investors mulled the release of the latest inflation data released on Friday, with the Core Personal Consumption Expenditures Index rising 3.9% year over year in August, down from 4.3% for July’s result. That means the Fed is poised to continue refraining from hiking interest rate hikes, as it looks for inflation and the economy to continue to cool down.

Futures market pricing in 14% chance of a rate hike in Nov

As of Friday, the futures market was pricing in an 86% chance that the US central bank will refrain from raising rates at its next meeting in November, though this also means that the chance of a rate hike is now 14%.

Singapore’s factory output plunged 12.1% in August

Singapore’s manufacturing output suffered its biggest drop since November 2019 as the key electronics industry reversed back into a slump in August.

Factory production fell 12.1% year on year in August, more sharply than expected, to record its 11th straight month of contraction.

Economists polled by Reuters had expected a 3.1% fall after output shrank just 0.9% in July, raising hopes for the start of a recovery.

Excluding biomedical manufacturing, total output fell 16.6%. Electronics, which accounts for 45% of Singapore’s total output, was August’s worst performer, with production plunging 20 per cent year on year amid weak global demand.

Within electronics, semiconductors saw the biggest fall in output of 23.7 per cent, reversing from growth of 5.1 per cent in July.

The Business Times quoted UOB economists Alvin Liew and Jester Koh saying the weak performance reaffirmed that the electronics and trade downcycles have yet to find a bottom. They cut their full-year estimate for industrial production growth to a 7% contraction from 5.4% previously.

However, DBS economist Chua Han Teng was quoted saying the 3-month moving average data shows that the electronics slump has likely bottomed.

Maybank said it is maintaining its 2023 GDP growth forecast at +0.8%, which stands at the lower end of MTI’s forecast range of +0.5% to +1.5%.

“Manufacturing in August has performed much more poorly than suggested by leading indicators…It is unclear whether the outsized fall in August semiconductor output was the result of any idiosyncratic or one-off factors’’ said Maybank.

SGX RegCo ordered Boustead Projects to delist – after making a fair and reasonable exit offer

The front-line regulator SGX RegCo last week directed Boustead Projects to delist as the company has not ensured that its free float is at least 10%, and also for offeror Boustead Singapore to make an exit offer to the shareholders that is “fair and reasonable”, with the proposal to be provided within one month from Tuesday.

Boustead Singapore in February announced a voluntary unconditional general offer to privatise its real estate unit Boustead Projects at an initial offer price of S$0.90 per share. After an appeal by the Securities Investors Association of Singapore or SIAS, this was raised to S$0.95.

However, the independent financial adviser (IFA) PrimePartners Corporate Finance said the offer was “not fair but reasonable’’ as S$0.95 was not within its final estimated valuation range of S$1.17-S$1.38.

At the close of the offer, Boustead Singapore and its concert parties owned or controlled 95.5% of Boustead Projects. Since the free float was less than 10%, the counter was suspended in March.

Boustead Singapore had previously said it would not be able to avail itself of the powers of compulsory acquisition under the Companies Act, which states that an offeror who acquires at least 90% of the shares (other than those already held by the offeror, its related companies or nominees) would be entitled to exercise the right to compulsorily acquire all the shares from shareholders who have not accepted the offer.

The offer for Boustead Projects did not extend to the 19.28% held through nominees by Boustead Singapore’s chairman and chief executive Wong Fong Fui.

Boustead Singapore sought more time to provide suitable exit offer

In response to SGX RegCo’s directive, Boustead Singapore said it and Boustead Projects were required to report their first half results within 45 days from 30 Sep and so were unable to provide an update on the exit offer.

As such, Boustead Singapore said it is seeking an extension from the regulator to provide exit offer details after its results have been released.

EC World Reit to defer 1H distribution indefinitely

EC World Reit said last week it will defer its first half distribution for 2023 that was scheduled for 28 Sep indefinitely as it has “insufficient funds’’.

Its manager said the trust’s sponsor and its subsidiaries had not been able to pay the overdue rent owed to ECW Group, which comprises EC World Reit and its subsidiaries.

The China-focused Reit and its subsidiaries are owed more than 145.8m yuan (S$27.3m) in overdue rent from its sponsor. This, according to the manager, could mean that the ECW Group may not have enough money to maintain its operations.

In particular, the group may not be able to pay interest expenses which may then constitute a default, which could consequently be viewed as a material adverse event by other lenders who might, in turn, demand repayment.

The manager said it is currently engaging the lenders and has not received any indication that they intend to demand repayment yet. It also said it is working with the sponsor group on a repayment plan and will appoint independent consultants to evaluate the market rental rates under master leases so as to formulate a new leasing strategy for these assets.

Creative’s shares were in play following Skyworth announcement

Shares in Creative Technology saw heavy play in the early part of last week, following the company’s announcement the previous week of a strategic partnership with Chinese electronics company Skyworth.

However, after closing at S$1.83 on Tuesday, the stock then slid to finish the week at S$1.68. Despite the fall, it still gained S$0.28 or 20% for the week and was S$0.51 or 44% above its S$1.17 price at which it traded before the announcement.

With the tie-up, Creative’s Super X-Fi (SXFI) Spatial Holographic Audio technology can be used with SXFI-compatible televisions by Skyworth as well as future models.

The company said the partnership “opens avenues for future collaboration between Creative and other industry partners” to bring SXFI technology to a wider array of consumer electronics and personal computer platforms.

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