Date: March 1, 2024
- The STI regained the 3,200 level but eventually fell below
- For the month, the loss was 12 points or 0.4% at 3,141.85
- Meanwhile, tech stocks continued to power Wall St to new highs
- Rise in US stocks came despite inflation warning signs
- Markets pricing in 19% chance of rate cut in May
- All three local banks reported solid results but share prices fell after announcement
- Banks face tough times ahead as interest rates are expected to fall: analysts
- Singapore market saw net institutional outflow of S$800m in 2024: SGX Research
Buy in anticipation, sell on news a major feature as local market decoupled from Wall St
Possibly the most obvious feature of market action in February was the decoupling between local stocks and Wall Street.
Where the major US indices continued to set new all-time highs – albeit largely driven by tech stocks – the Straits Times Index, heavily weighted as it is in non-tech counters like banks (whose earnings are expected to decline when interest rates are cut) and the Jardine group (with its exposure to a floundering China), struggled to hold on to the 3,200 level.
There was also a strong element of “buy in anticipation, sell on news’’ evident in the way trading developed here, with a large push on index stocks such as the banks, Singapore Airlines and Sembcorp Industries ahead of their results announcements in the third week of the month, only to be followed by all being sold off sharply after release of their numbers.
The Straits Times Index’s peak for the month came on 20 Feb when it closed at 3,244.06, whilst its trough was 3,134.29 on 5 Feb, which means that it spanned a trading range of about 110 points.
For the month, the index fell 12 points or about 0.4% to 3,141.85.
Volume however, improved with daily turnover consistently staying above the S$1b mark, except for the half-day session on 9 Feb, which was the eve of Chinese New Year.
Wall Street continued to be powered by tech, mainly AI
Warren Buffett stated in his annual letter to investors that “for whatever reasons, markets now exhibit far more casino-like behaviour than they did when I was young. The casino now rides in many homes and daily tempts the occupant.”
For whatever reasons, all three major US indices set several all-time highs in February. The way up was led by “Magnificent Seven’’ – Amazon, Apple, Alphabet, Nvidia, Meta, Microsoft and Tesla.
The push is largely being driven by a play on artificial intelligence (AI) which has seen semiconductor stock Nvidia triple in 2023 and rise about 60% so far in 2024.
Interest rate concerns took a back seat despite uptick in bond yields
The AI-led mania ensured that the US market set aside its interest rate concerns, continuing to rise even after release of stronger-than-expected consumer and producer price data, even after bond yields rose with the 10-year Treasury rising above 4.2% and even after release of the minutes of the latest US Federal Reserve Open Markets Committee meeting, which showed no rate cuts are being considered yet:
“Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.”
The Federal Reserve’s preferred inflation measure revealed Thursday that prices rose markedly on a monthly basis.
The January core personal consumption expenditures price index, which excludes the volatile costs of food and energy, increased 0.4% from December. The reported increase was in line with expectations.
The yield on the 10-year US Treasury rose 0.286 percentage point in February to 4.251% and the two-year gained 0.417 p.p. to 4.644%.
Despite these developments, the Nasdaq Composite closed at a new all-time high whilst the Dow Jones Industrial Average and S&P 500 both also rose.
Probability of a rate cut in March is 3%; for May it’s 19%
At the end of the month, the probability that the Fed will keep rates steady at its next meeting on 20 March was about 97%, which means the market is pricing in only a 3% chance of a rate cut.
However, the futures market is currently pricing in a 19% chance of a 25-basis rate cut in May.
All three banks reported solid results but share prices fell after announcement
DBS – bonus issue which also qualifies for dividends
DBS reported net profit of S$2.27 billion for the fourth quarter ended December, 3% lower recorded in the year-ago period. The net profit, which included one-off costs, missed a S$2.39 billion consensus forecast in a Bloomberg survey of two analysts.
DBS declared a dividend of S$0.54 per share for the period, up from S$0.42 per share in the previous Q4. This brings the ordinary dividend for the full year to S$1.92 per share.
In addition, DBS proposed a bonus issue on the basis of one bonus share for every existing 10 ordinary shares held.
The bonus shares will qualify for dividends starting with the first-quarter 2024 interim dividend and will increase the pace of capital returns to shareholders.
DBS’s shares started the month at S$31.88 and hit a high of S$34.17 on 20 Feb. They ended the month at S$33.33 for a nett gain of S$1.45 or 4.5% for the month.
UOB – 21.8% rise in Q4 net profit
UOB reported a 21.8% increase in net profit for the fourth quarter thanks mainly to higher net fee income and other non-interest income.
This included S$94 million in one-off expenses from the lender’s Citigroup integration costs after taxes, which was 35% higher than the S$70 million recorded in the same period the previous year. In Q4 2022, UOB also paid a one-off stamp duty of S$176 million.
The earnings missed a S$1.5 billion consensus forecast for the fourth quarter in a Bloomberg survey of two analysts. If not for the one-off integration expenses, core net profit would have been in line with the projections.
UOB’s board has recommended a final dividend of S$0.85 per share for the half-year period. This brings the full-year dividend to S$1.70 per share, representing a payout ratio of about 50 per cent.
UOB’s shares started the month at S$28.37 and rose to a high of S$29.51 on 20 Feb. They ended Feb at S$27.95 for a net loss of S$0.42 or 1.5% for the month.
OCBC – net profit for FY2023 crossed S$7b for the first time
On Wed, OCBC reported that net profit rose 27% year on year to S$7.02 billion for FY2023, crossing the S$7 billion mark for the first time.
This translated to earnings per share of S$1.55 for the full year, up 27% from S$1.22 in the same period a year earlier.
For the fourth quarter of 2023, the lender’s net profit gained 12% to S$1.62 billion from S$1.44 billion a year prior, driven by a 2% increase in operating profit as well as lower allowances.
Net interest income grew 3% year on year to S$2.46 billion, as average assets grew 4%. Total income rose to a new high of S$13.5 billion, amid record high net interest income and higher trading and investment income.
OCBC’s shares started the month at S$12.89 and reached a high of S$13.45 on 20 Feb before finishing Feb at S$12.98. The net gain over the month was S$0.09 or 0.7%.
The STI Banks have proposed to pay final dividends (subject to shareholder approval) that take the total combined dividend amounts for the trio to S$11.5 billion, for their full 2023 Financial Year (FY23). Based on end of FY23 share prices, this generated a 6.0% average dividend yield for the trio.
Banks face tough times ahead as interest rates are expected to fall: analysts
The Straits Times on Friday quoted Thilan Wickramasinghe, Singapore research head and regional financials head at Maybank Investment Banking Group, saying of the banks’ performance:
“There was a big dependence on interest income to drive earnings, while non-interest income is still soft due to weak wealth management. Asset quality turned out to be a pleasant surprise in as much as NPLs – non-performing loans – were largely falling despite high interest rates and slower macro growth’’.
UOB’s net interest margin (NIM) – a key profitability gauge – fell over the past year. It stood at 2.02% in the fourth quarter, down from 2.22% a year earlier and 2.09% in the third quarter.
DBS’ fourth-quarter NIM of 2.13% was down from 2.19% in the third quarter, but up from 2.05% in the fourth quarter of 2022.
NIM at OCBC came in at 2.29% in the fourth quarter, up from 2.27% in the third but down from 2.31% a year earlier.
Phillip Securities Research senior research analyst Glenn Thum noted that all three banks have said they are willing to lose some deposits to manage funding costs.
“This should help to maintain the banks’ NIMs and with the drop in rates expected to come in the second half of 2024, loans growth will more than offset the decline in NIM,” he said, adding that the lenders also need to look at fee income and controlling operating expenses to continue growing.
Singapore market saw net institutional outflows in 2024: SGX Research
Perhaps not surprisingly given the market’s lacklustre performance, Singapore Exchange (SGX) Research in its 27 Feb Market Update said although net institutional inflows to the Industrials and Technology segments of the iEdge SG Adv Manufacturing Index have seen the Index constituents book overall net institutional inflow of S$18 million so far in 2024, “the rest of the Singapore stock market has booked more than S$800 million of net institutional outflow’’.
SGX Research also said the Industrial segment, Yangzijiang Shipbuilding, Singapore Tech Engineering and SATS booked the highest net institutional inflow and for the Technology segment, Venture, Frencken and UMS booked the highest net institutional inflow over the period. The three Industrials averaged 3.7% gains, while the three Tech stocks averaged 9.4% gains.
