Monthly Market Wrap: Lurching from one crisis to another

Date: April 3, 2023

  • The worry shifted from interest rates to a banking crisis
  • Powell’s testimony early in the month spooked markets
  • However, the banking crisis could see a more dovish Fed
  • Wall St has rallied on hopes that the Fed will become more accomodative
  • The STI lost only 4 points in March at 3,258.9; the 1Q gain was 7 points
  • US Treasury yields fell sharply in the final weeks
  • Singapore’s market cap rose 0.5% to S$819.1b
  • Industrial S-Reits were the best performers in 1Q: SGX
  • ASEAN banks could benefit from a flight to safety: Maybank
  • Tighter bank lending could lead to a recession: US report


From interest rate worries to fears of a banking crisis

Just after markets had recovered their poise from the trauma of rapidly-rising interest rates which marked most of 2022 and the first quarter of 2023, they were then confronted with yet another worrisome development in March – fears of a banking crisis.

This is not to say that interest rates are not an issue any longer, but as far as March was concerned, although the month kicked off with the Straits Times Index falling every day for the first week on worries over how high rates would be raised, the month ended with the index rising four out of five days of the final week as bank contagion worries, which surfaced in the second week, faded.

Powell’s testimony early in the month spooked markets

In between, stocks came under pressure after US Federal Reserve chairman Jerome Powell’s testimony to Congress, at which he made it clear that the Fed was not done with raising interest rates and would be prepared to accelerate the pace of monetary tightening if required.

The Fed may have to backtrack on its resolve and become more dovish

That resolve is likely to have dimmed considerably, give the collapse of the US’s Silicon Valley Bank (SVB) and Signature Bank as well as the venerable Swiss bank, Credit Suisse soon after Mr Powell spoke.

The silver lining – for now at least – is that turmoil in the banking sector has led the market to hope that central banks, starting with the Fed, will soon taper their rate hikes rather than risk raising rates too aggressively and thus adding to the sector’s problems.

Latest US inflation data supports notion of a more dovish Fed

Excluding food and energy, the personal consumption expenditure prices index–the Fed’s favourite inflation gauge–rose 4.6% year over year in February, slightly below economists’ expectations of 4.7%, furthering the idea that the central bank may switch to a more accommodative stance.

Bank bailouts and receding rate fears have pushed stocks up

A combination of large bailouts for US banks and Credit Suisse and hopes that interest rates won’t be raised by too much for much longer have enabled stock markets to hold up remarkably well.

Whether supported by hope more than anything else, stocks have not caved in as they did during the last great banking crisis which occurred during the US sub-prime crisis of 2008 – over the month of March, the Straits Times Index only fell 4 points to 3,258.9, whilst over on Wall St, equities have rallied.

For the final week of March, the STI recorded a gain of 46 points or 1.4%, whilst for the first quarter, the gain was 7 points.

Over in the US, the Dow Jones Industrial Average gained 0.4% in the first quarter, the S&P 500 climbed 7%, and Nasdaq Composite was up 17%.

US Treasury yields fell sharply in the final weeks of March

The 2-year Treasury yield first rose above 5%, the first time that level had been crossed since 2007. At the same time, the 10-year yield was 3.96%; however, by the end of the month, the 2-year and 10-year yields were 3.76% and 3.47% respectively.

Singapore’s market cap rose 0.5% to S$819.1b

The total market value of the 630 companies listed on SGX rose 0.5% month-on-month to S$819.1b. The advance-decline score was 198-285.

The total value of the 30 STI stocks rose 0.4% to S$539.2b.

Of the three banks, DBS and OCBC were among the biggest losers – DBS’s market value fell S$3b whilst OCBC’s was down S$1.4b. UOB in the meantime, saw its market cap drop S$269.7m.

Sembcorp Marine posted the largest gain, its market cap rising S$4.1b. This was followed by Wilmar International’s S$1.728b rise.

Industrial S-REITs were among the best performers in 1Q: SGX

In a 27 March Market Update, the Singapore Exchange (SGX) said For the first 12 weeks of 2023, the SGX’s the iEdge S-REIT Index generated a 3% total return, with the FTSE EPRA/NAREIT Global REITs Index declining 4%.

“Within the S-REIT Sector, Industrial S-REITs averaged the highest median total returns over the past 12 weeks at 4%, while Office REITs booked the highest median decline in total return at -8%’’ said SGX.

“With a combined market value of S$99 billion, the S-REIT Sector has booked more than S$200 million of institutional outflow over the past 12 weeks. The 27 trusts of the Sector that booked net institutional outflow over the past 12 weeks represent 52% of the combined S-REIT Sector market value. The 27 trusts have averaged 6% declines in total return over the 12 weeks, while maintaining a median P/B ratio of 0.70x as of 28 Feb’’.

ASEAN Banks could benefit from flight to safety: Maybank

In a 29 March report, Maybank said ASEAN banks are well placed to ride out the current global banking uncertainties given their conservative balance sheets and banking models, strong regulatory oversight, China re-opening and partially decoupled growth in domestic economies.

“ASEAN loans are set to grow around 9% YoY in 2023E and NIMs (net interest margins) should see upside in half of the ASEAN-6. Nevertheless, asset quality is a key concern amidst slower global growth and higher credit charges need to be watched’’.

The broker added that it is positive on banks in Malaysia, Philippines and Thailand, but is “neutral’’ on banks in Indonesia, Singapore and Vietnam where asset quality risks, slower growth could offset strong balance sheet quality.

Banking crisis may be averted for now, but at what cost?

However, not all is well as far as the outlook is concerned. The concern now is that banks will tighten their lending and the consequences of this for growth.

According to a 25 March report in US newspaper Barron’s, even before the failure of SVB, the Fed’s January Senior Loan Officer Opinion Survey showed that the percentage of banks tightening lending standards had risen to 44.8%, the highest reading since July 2020, at the peak of the Covid lockdowns. Given the problems at regional banks, that percentage is likely to go even higher.

Why does tightening of credit cause concern? In the same report, Bank of America economist Michael Gapen, using lending data from 1991 through 2022, found that a “shock to lending standards” caused declines in employment, consumer lending, and investment in structures and equipment.

“Downside risk to the outlook has risen,” he wrote. “Adverse shocks to bank credit growth can lead to adverse economic outcomes.”


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