Monthly Market Wrap: “Sell in May and go away?”

Date: May 2, 2023

  • The STI rose 0.37% in April but fell 1.53% in the final week to 3,270.51
  • Main feature was fresh property cooling measures last week
  • Factory output fell 4.2% in March
  • Uncertainty and downside risks have risen: MAS
  • UOB reported 67% jump in 1Q net profit but stock took a beating
  • Singapore’s market cap down 0.5% to S$814.8b
  • All eyes on this week’s FOMC where market expects 25-points rate hike


Sell in May and go away?

All eyes will be on next week’s US Federal Open Markets Committee meeting which concludes on Wednesday. Uppermost in the minds of most investors is that although a 25-basis points interest rate hike is virtually certain, what might the Fed’s guidance be with regards to future US monetary policy?

A second consideration would be whether to “sell in May and go away’’ given that April proved to be a relatively featureless month during which the Straits Times Index only managed a 12 points or 0.37% gain at 3,270.51 and considering the economic uncertainties that lie ahead.

Some investors, especially in the US, believe May is the month to sell and stay away from the market until October, this belief being rooted in past observations that the market tends to experience its weakest months over the US summer before undergoing a pronounced uptick during the winter months starting in October.

Research also bears this out – according to a Friday report in US newspaper Barron’s, the S&P 500’s average return in May dating back to 1928 has been a 0.1% dip.

Whether this proves to be the case this year remains to be seen but trading volume in the local market has been declining in recent weeks, with turnover below S$1b per day for several days in April.

However, last week during which the STI lost its grip on the 3,300 level when it fell for four of the five days and shed 51 points or 1.53%, average daily business picked up to S$1.02b. This compares with S$949m the previous week and S$802m the week before.

Govt announced fresh property cooling measures, property stocks tumbled

Possibly the most notable local development occurred last Wednesday when the Government announced a fresh round of property cooling measures in the form of new additional buyer’s stamp duties (ABSD) aimed at discouraging investment in local property, particularly by foreigners.

A joint statement by the Ministry of Finance, Ministry of National Development and Monetary Authority of Singapore (MAS), said the implementation of property market measures in December 2021 and September 2022 have had a moderating effect.

“However, in 1Q2023, property prices showed renewed signs of acceleration amid resilient demand. Demand from locals purchasing homes for owner-occupation has been especially strong, and there has also been renewed interest from local and foreign investors in our residential property market. If left unchecked, prices could run ahead of economic fundamentals, with the risk of a sustained increase in prices relative to incomes’’.

The authorities announced late on Wednesday that the ABSD rate for foreigners buying any residential property in Singapore will be raised from 30 to 60%.

For Singapore citizens, the rate will be raised from 17 to 20% for those buying their second residential property, and from 25 to 30% for those getting their third and subsequent property.

Private home prices have jumped 3.3 per cent in the first quarter of 2023, after rising 0.4 per cent in the fourth quarter of 2022.

On Thursday, property counters took a large hit – City Developments (CDL) lost S$0.41 or 5.6% at S$6.91 on high volume of 8.9m, UOL dropped S$0.34 or 4.73% to S$6.85 on turnover of 2.4m and PropNex plunged S$0.14 or 6.5% to S$2.01 with 1.7m done.

On Friday, some counters such as CDL and UOL managed modest rebounds, but PropNex’s lost a further S$0.76 or 38% at S$1.25 on volume of 7.4m. However, it traded ex for its final dividend of S$0.08 per share that day, as well as a one-for-one bonus issue.

Factory output fell 4.2% in March

Singapore’s industrial production contracted 4.2% year-on-year in March, although less than the 6.1% that economists had expected, was nevertheless the sixth consecutive month of contraction.

The Business Times quoted private sector economists as not expecting a turnaround yet. Oxford Economics’ Alex Holmes said whilst China’s reopening may boost its import demand, this will likely be offset by slowing demand from the rest of the world as tight monetary policy weighs on growth.

Maybank economists Chua Hak Bin and Lee Ju Yee expect the manufacturing contraction to persist for the first half. China’s recovery so far is largely driven by consumption and domestic services with the subdued manufacturing and import recovery providing “limited demand spillover to regional countries’’ they added.

If the boost from China’s reopening remains limited in the second quarter, Singapore may slip into a technical recession, said Maybank’s Chua.

Uncertainty, financial stability tail risks have risen: MAS

The rise in global interest rates means rising uncertainty and financial stability tail risks, said the MAS in its half-yearly macroeconomic review released last Wednesday. It expects the global economy to grow 2.8%, down from 3.3% in 2022.

The slowdown will be driven by slower growth from the eurozone and the US and while China will be the exception as its economy rebounds with the country’s reopening, this boost to Asian exports is not expected to offset the negative impact of weakening demand from the advanced economies, said MAS.

For Singapore, MAS maintained its forecast for GDP to grow 0.5 to 2.5%, moderating from 3.6% in 2022, but added that the near-erm risk to growth is “skewed to the downside’’.

UOB reported 67% jump in 1Q net profit but stock took a beating

UOB on Thursday reported a net profit of S$1.5 billion for its first quarter ended Mar 31, up 67 per cent from S$906 million a year earlier, and in line with the S$1.5 billion average estimate from three analysts polled by Bloomberg.

Excluding one-off expenses – specifically integration costs incurred in the acquisition of Citigroup’s consumer banking businesses – UOB’s net profit for the quarter was a record S$1.6 billion, up 74 per cent on year.

Despite these impressive numbers, UOB’s shares came under selling pressure, losing S$0.15 on Thursday and S$0.89 on Friday, bringing its 2-day loss to S$1.04 or 3.6% at S$28.22.

UOB deputy chairman and chief executive Wee Ee Cheong downgraded the bank’s forecast for loan growth in 2023 to a low to mid-single digit, compared with a mid-single digit previously.

Mr Wee noted that customers, conscious of rising interest rates, are focusing on paying down their existing loans. This is a good sign as it means they have liquidity to make these repayments, he told a briefing on Thursday.

Asked about the impact of Wednesday’s fresh round of property cooling measures on housing loans, Mr Wee noted that the higher stamp duties will have a larger impact on foreigners buying properties in Singapore.

“As far as UOB is concerned, close to 80 per cent of our loan books are owner-occupied… I believe the portfolio will continue to stay resilient,” he said.

In its report on UOB’s results, Maybank said it is lowering its 2023-25 estimated earnings for UOB by 2-3% from slower net interest margins and loan growth. Using a 9.1% cost of equity, its dividend discount model leads to a lower target price of S$30.53 from S$31.73 previously.

“The Group’s gearing to ASEAN gives it a strategic advantage to benefit from regional growth. However, medium term asset quality headwinds and slowing growth means risk-reward is balanced. Maintain HOLD’’ said Maybank.

Singapore’s market cap down 0.5% in April

The market value of the 629 companies listed on SGX fell 0.5% or S$4.4b in April to S$814.8b, although 249 companies recorded gains versus 205 falls.

The market cap of the 30 STI counters rose S$500m or 0.1% to S$539.6b, or about 66% of the entire market.

SGX market strategist Geoff Howie noted that April saw the narrowest monthly percentage trading range for the STI since Feb 2015 with a range between 3,331.66 and 3,263.36.

UOB and DBS were among the top losers in April. UOB’s market cap fell S$2.6b to S$47.6b, whilst DBS lost S$464.7m at S$84.7b. The biggest gainer was Singtel, which added S$1.49b at S$42.1b.

How Wall St fared

Wall St stocks enjoyed their best month since January on the back of corporate earnings. However, worries of a slowdown remain, although this could lead the Fed to slow its tightening of interest rates.

“US stocks are rallying on strong earnings and on optimism that the economy will gradually soften and bring down inflation. The Fed will be able to move forward with one, perhaps two more rate hikes, but then that should be it,” Edward Moya, senior market analyst at Oanda, wrote Thursday.

There was also new economic data reports Thursday. First-quarter gross domestic product growth missed economists’ expectations, as GDP grew 1.1% in the first quarter, below the forecast of 1.9% and below last quarter’s 2.6%.

“The disappointing 1.1% annualised rise in first-quarter GDP indicates that the economy had less forward momentum at the start of this year than previously thought,” wrote Andrew Hunter, deputy chief US economist at Capital Economics.

“We continue to expect the drag from higher interest rates and tightening credit conditions to push the economy into a mild recession soon.”

Futures market is betting on a 25-points hike this week

Federal-funds futures showed traders are increasingly betting the Federal Reserve will raise the benchmark rate by 25 basis points at the Federal Open Market Committee’s May 2-3 meeting, according to the CME FedWatch Tool.

A basis point is a hundredth of a percentage point. Odds of a 25 basis point hike on Friday stood at 80.2% versus 47.2% a month ago.

Investing with Insight: Watch this Week’s Technical Outlook