Date: June 1, 2023
- The STI dropped 112 points or 3.4% to 3,158.80
- Singapore’s market cap fell 2.8% in May to S$792b
- The month started with US bank and inflation worries uppermost
- The month ended with US government debt ceiling concerns
- In between, local banks reported solid earnings but their stocks fell on expectations of narrowing NIMs
- SGX: Artificial Intelligence in play, semiconductor outlook is robust
- MAS imposed additional capital requirements on DBS for system outage
- Domestic economic news was negative; MTI said no technical recession expected – yet
“Sell in May and go away’’ – the STI dropped 3.4%
Overall, it was not a particularly notable month for the local market, with the Straits Times Index dropping 112 points or 3.4 % to 3,158.80. Average daily volume was generally weak throughout the month, with S$800-900m done each day.
However, month-end “portfolio rebalancing’’ on Wednesday 31 May saw turnover spike up to 2.74b units worth S$2.82b.
Among the stocks involved were the banks, Singtel and Singapore Airlines (SIA) all of which saw heavy volume transacted on the last day of the month.
Market cap for May was down 2.8% to S$792b
The market capitalisation of the 627 listed companies shrank 2.8% month-on-month to S$792b from S$815b in April. Losers outnumbered gainers by 341 to 163.
The market cap of the 30 STI constituents dropped 2.9% to S$523.8b in May, which is 66% or two-thirds of the whole market.
The Business Times quoted Singapore Exchange (SGX) strategist Geoff Howie saying the STI traded in a range that was twice the size of what was produced in April.
“Again, global cues mattered, with increased expectations that the US Fed will not pause, but rather hike, on June 14, while stock bid tones also moderated as the US debt-ceiling negotiations entered the 11th hour’’ said Mr Howie.
SIA was the largest gainer, adding S$1.7b in value over the month. Other big gainers included Sembcorp Industries (S$1.34b) and Jardine Matheson (S$622m).
DBS led the declines with a S$6.5b loss in market cap, followed by CapitaLand Investment with SS$2.1b and Thai Beverage whose value dropped S$2b.
The month started with inflation and bank worries
The month started with US inflation and interest rates in focus as the Federal Reserve raised its short-term rates by the widely-expected 25 basis points – the 10th hike in a row – that took the rate to 5-5.25%.
Also lurking at the back of the minds of investors was the health of US banks following the collapse of Silicon Valley Bank earlier in the year and concerns over the several regional banks.
An unexpectedly strong April US jobs report and a comment by Fed chief Jerome Powell that rates are unlikely to be cut this year revived interest rate concerns and placed a cap on Wall Street’s gains for the first couple of weeks.
The month ended with the US government debt ceiling in focus
However, buy by the time the month ended, concerns over rates and the state of the US economy had been replaced by a new worry – that the US government debt ceiling might not be raised in time to avoid a default. As of 30 May, this had not yet been resolved.
Banks reported record earnings but all came under pressure
In between, there was a slew of corporate earnings for investors to digest, among them those from the three banks, Singtel, SIngPost and Singapore Airlines.
In the case of the banks all reported record profits but the cautious outlook expressed by their bosses and expectations that their net interest margins (NIMs) would narrow led to most analysts lowering their earnings estimates and therefore target prices.
US debt ceiling situation
President Joe Biden and House Speaker Kevin McCarthy announced a deal late Saturday, which includes new federal spending limits. The agreement still needs to pass through Congress, where lawmakers on both sides of the aisle have criticized it. As of Tuesday 30 May, it has yet to be approved. The deadline is 5 June.
For Oanda senior market analyst Edward Moya, the deal has entered the seventh-inning stretch.
“The base case for many is that the House won’t play games this time and pass the vote,” he wrote. “The Senate will likely bring us more drama and take us to the very end of the 11th hour.”
Spotlight on AI: SGX
In a 29 May Market Update, the Singapore Exchange’s (SGX’s) investor education portal My Gateway said while technology has ranked as both the strongest performing sector globally and regionally over the past 21 weeks, the 10 most traded Singapore-listed tech stocks have averaged a 6% year-to-date decline in total return on S$63 million of net institutional outflow, with the majority of the 10 stocks priced at a discount to their 5-year Price/Book.
“Last week, UMS and AEM averaged 8.5% symmetrical returns on combined net institutional flow of S$10 million. This coincided with Nvidia and TSMC gaining 25% and 7% respectively’’ said SGX.
“While Nvidia reported 19% quarter-on-quarter revenue growth on 24 May, its projection for accelerated computing and generative AI (artificial intelligence) took much of the spotlight. The following session saw SGX FTSE Taiwan Index Futures attain a 14-month trading volume record’’.
SGX also said AEM recently maintained that looking beyond 2023, the future of the semiconductor industry has never been more promising stating that “recent excitement over Generative AI, such as ChatGPT, is fuelling the demand for AI-focused semiconductor devices to enable these solutions to be delivered to the masses at economically feasible rates” whilst UMS has pointed out that the long-term outlook for the semiconductor market remains strong due to the ever-increasing role of chips in powering the critical technologies of today and tomorrow.
MAS imposed additional capital requirements on DBS
Early in the month, the Monetary Authority of Singapore imposed an additional capital requirement on DBS after the bank recently suffered its third digital banking breakdown in 18 months.
Along with the additional capital requirement of S$930m imposed on DBS in Feb last year that was related to a Nov 2021 disruption, this brings to total additional regulatory capital requirement on DBS to about S$1.6b.
The additional capital requirement on DBS is now 1.8 times its risk-weighted assets for operational risk, an increase from 1.5 times before.
Negative news for local economy; MTI says no technical recession expected – yet
Throughout the month, investors had to deal with mainly negative domestic economic releases.
Non-oil domestic exports (NODX) fell 9.8 per cent year-on-year in April, the seventh consecutive month of decline. This follows an 8.3 per cent decline in March, and was slightly worse than the 9.4 per cent contraction forecast by economists in a Reuters poll and the 9.6 per cent drop in a Bloomberg poll.
Later in the month came news that factory output fell 6.9 per cent year on year in April, after falling a revised 3.8 per cent in March.
The Ministry of Trade and Industry (MTI) said it does not expect a technical recession this year, defined as two consecutive quarters of sequential contraction; however, private sector economists were reported saying the odds are increasing that there will be a technical recession later this year, mainly because China’s reopening has not resulted in the hoped-for boost yet.
