Monthly Market Wrap: “Inflation is headed down, so stocks are headed up”

Date: August 1, 2023

  • Pessimism over inflation first dragged the STI to month-low of 3,139.47
  • Optimism then took over, STI quickly regained 3,200 then 3,300
  • For the month, the STI recorded a 168 points or 5.2% gain at 3,373.98
  • OCBC Investment Research: Singapore stocks should shine in 2H 2023
  • Up to July 18, Sembcorp and Seatrium have enjoyed the most institutional inflows: SGX Research
  • Singapore’s market cap up 4.6% in July to S$841.6b
  • Analysts divided over whether US will have soft landing or recession


The month kicked off on a pessimistic note…

July was a month in which the local stock market mainly found itself gyrating between bouts of pessimism and optimism insofar as US interest rates and inflation were concerned.

First came pessimism in the form of hawkish comments in the minutes of the June US Federal Open Markets Committee (FOMC) meeting where committee members believed maintaining a restrictive stance for monetary policy would be “appropriate” going forward.

In response, the Straits Times Index fell every day of the first trading week of the month, losing its hold on the 3,200 level and reaching its lowest closing for the month of 3,139.47 on 7 July.

…but pessimism soon turned to optimism

The second week brought much-needed relief, with the STI gaining every day to regain the 3,200 mark on rising hopes that even if the Fed does raise rates at its July FOMC meeting, the hiking cycle must surely be close to an end. Also helping was a benign June consumer price index report.

This optimism, coupled with strong corporate earnings reported by US companies, helped the Dow Jones Industrial Average rise for 13 consecutive sessions between 10-26 July, its best run since 1987. During this run the Dow gained 1,576 points or 4.6% at 35,520 before sliding 237 points last Thursday and then rebounding on Friday.

The STI regained the 3,200 mark then 3,300 in quick succession

The STI in meantime, followed suit and reclaimed the 3,300 level on Wed, 26 July before ending the month at 3,373.98. Its gain for July was 168 points or 5.2%.

Volume however, remained relatively mediocre. Towards the latter part of the month there was a play on the banks ahead of the release of their 2Q earnings such that during the final trading week of July, the value of daily trades done in DBS, UOB and OCBC accounted for around 35% of the entire market’s value traded.

Apart from optimism on the interest rate front from Wall St, another possible reason for the strong showing in July was a report from OCBC Investment Research early in the month that at the time, market valuations based on the STI were looking attractive and that STI stocks offered a decent average dividend yield of 5.1 per cent, based on 2023 estimates.

The broker’s research head Carmen Lee also said Singapore’s safe-haven stocks could help to reduce the volatility in an equity portfolio.

Sembcorp & Seatrium have enjoyed most institutional inflows so far: SGX Research

In a 24 July Market Update, SGX Research said Sembcorp Industries and Seatrium have booked the most net institutional fund inflows in the year to Jul 18. Both stocks have been associated with pivots to sustainable infrastructure and have also ranked among Singapore’s most traded stocks over the period.

“The next two stocks that have seen the next highest net institutional inflow, Genting Singapore and Singapore Airlines (SIA), have been associated with the new value the globe has put on travel and leisure following Covid, with SIA ranking as Singapore’s fifth most traded stock so far this year and Genting Singapore keeping its place among the 10 most actively traded’’ said SGX Research.

“At the same time, stocks that have booked the highest net institutional outflow included DBS, UOB, Singtel, OCBC and Keppel Corporation’’.

Vibrant activity among top traded stocks: SGX Research

In a 31 July report, SGX’s market strategist Geoff Howie said Seatrium has averaged a daily trading turnover of S$43m over the first 30 weeks of the year, compared with an average of S$15 in 2022. Mr Howie noted that the company, formed from the merger of Sembcorp Marine and Keppel O&M, has seen its market capitalisation rise to a level such that it displaced Keppel DC REIT in the STI’s most recent quarterly rebalancing.

Food Empire Holdings was singled out for having posted a 75% price gain in the year until 26 July, whilst its average daily trading turnover has jumped from S$130,000 in 2022 to S$796,000.

Another stock mentioned by Mr Howie was TJ DaRenTang, which has averaged daily turnover of S$1m for the year until 26 July versus S$183,000 in 2022. In Sing dollar terms, the stock has generated an 89% price gain.

Singapore stocks’ market cap up 4.6% in July

The market capitalisation of the 624 listed companies grew 4.6% in July to S$841.6b, with 250 recording gains and 230 recording falls.

The market cap of the 30 components in the STI rose 4.1% to S$560.3b, or about 67% of the entire market.

NIO was the biggest gainer, with an increase of S$13.9b. This was followed by the three banks, DBS, OCBC and UOB which rose S$71.b. S$4.6b and S$3.54b respectively.

DBS ranked as the market’s largest stock, with a market value of S$88.45b.

Is the US headed for a soft landing or is a recession inevitable?

As with many other questions which can be asked when it comes to the stock market and matters regarding the economic outlook, whether or not the US economy is headed for a hard or soft landing depends on who you ask.

After last week’s FOMC meeting, Fed chairman Jerome Powell said the US central bank’s staff are no longer forecasting a recession, as the Fed aims to stem inflation by raising interest rates without causing an economic downturn.

Powell said in a press conference the “resiliency in the economy” recently prompted Fed staff to downgrade their forecast, which Powell noted is “independent” of the predictions made by members of the Fed’s rate-setting committee.

Those who support the soft landing scenario point out that unemployment remains extremely low at 3.6% and many companies are still hiring. Consumers are also spending at healthy levels, especially on leisure, travel and recreation, and propping up the large service side of the economy.

Many Wall Street economists on the other hand, think a recession is more likely than not. They point to more interest-rates increases by the Fed, slowing business sentiment, a depressed housing market, a slump in the manufacturing sector and ongoing strains in the banking system that could curb lending.

The earliest a downturn would likely start, based on the most recent Wall Street forecasts, is the final three months of 2023.

That’s what economists at the Conference Board predict. The board’s index of leading economic indicators fell in June for the 15th month in a row, a rare losing streak that in the past has always pointed to pending recession.

The last time the index suffered such a long string of declines was during the 2007-2009 Great Recession.