Monthly Market Wrap: Trump’s win and Wall St’s rallies help STI set fresh 17-year highs

Date: December 2, 2024

• The STI rallied 181 points or 5.1% in Nov to 3,739.29
• It reached a closing 17-year high of 3,757.97 on 19 Nov
• Trump’s US presidential win provided support via Wall St’s rallies
• Uncertainty set in later in the month over future economic policies
• Banks were main STI drivers with gains of 7.2-13%
• RHB upgraded banking sector to “overweight’’
• Macquarie initiated coverage of 11 S-REITs, 9 rated as “outperform’’
• Secondary listing of HK-listed PC Partner on SGX
• New leverage guidelines announced for S-REITs

 

The “Trump trade’’ later gave way to inflation and US tariff concerns

The month started with markets trading uncertainly ahead of the US Presidential election, mainly because of doubt over whether the eventual winner’s economic policies would be inflationary or not.

The US bond market responded by pushing yields up in anticipation of a possible increase in inflation whilst a weak October jobs report added to the pressure on stocks.

As a result, all three major US indices weakened, and the Straits Times Index lost 1.05% in the first week.

All this changed following a landslide win for Republican candidate Donald Trump which led to a large rally on Wall Street that took with it the local market.

However, the bulk of the Straits Times Index’s gains to successive 17-year highs in the ensuing weeks came courtesy of the three banks, with the broad market regularly recording more losses than gains despite the index’s large rises.

The “Trump trade’’ ran out of steam in the final week of the month possibly because of concerns surrounding the outlook for global trade if threatened tariffs are actually implemented. Last week, the STI fell three of the five trading days to record a nett loss for the week of 7 points or 0.18% at 3,739.29.

However, this was not enough to prevent the index from recording a solid gain of 181 points or 5.1%.

US interest rate outlook: uncertain, depending on Trump’s policies

Market participants got a taste of what is to come under Donald Trump’s second administration, after the President-elect said he would levy 25% tariffs on goods coming from Mexico and Canada. He’ll also look to charge an additional 10% tax on products from China, which would be above any additional tariffs.

First off, tariffs which President-elect Trump has threatened would ultimately hurt the US economy. Initially, imported goods would become more expensive for U.S. companies, adding to inflation and forcing them to lift prices. But after a while, that would dent consumer demand, limiting price gains.

In any case, what will happen in terms of tariffs isn’t clear. Trump hasn’t even taken office and markets are uncertain about what he might actually do.

Secondly, the Fed doesn’t want to see inflation surge. While it is cutting rates now to keep the economy growing, it could keep the federal-funds rate elevated to rein in demand if prices start to take off.

“What the Fed is likely thinking is that, at least in 2025, they have some expansionary fiscal spending coming, and the potential for higher inflation with the tariffs,” says Brett Ryan, senior U.S. economist at Deutsche Bank.

“That means not much progress on getting to 2% inflation. They’re not cutting anymore, and that’s why you’ve seen expectations for fed cuts next year go from 100 basis points to around 75.”

As of Friday, the federal funds futures market was pricing in a 67% chance that the Fed will cut rates by 25 basis points at its 18 Dec meeting, with a 33% chance that there will be no rate cut.

As usual, it was the banks which were the main index drivers

DBS reported a 17% rise in Q3 profit to S$3.03b, UOB reported a 16% rise in Q3 profit to S$1.61b and OCBC reported a 9% rise in Q3 profit to S$1.97b.

Additionally, DBS’ board has established a new S$3 billion share buyback programme where the bank’s shares will be purchased in the open market and cancelled.

In a Market Update, SGX Research noted that the combined weighting of the three banks in the index had risen from 40% at the end of 2019 to 51% as of 23 Sep this year.

“DBS, UOB and OCBC make up around 25 cents to every dollar that changes hands every day in the Singapore stock market. Around two-thirds of the trio’s total income is generated from Net Interest Income (NII). Their combined NII was S$8b in 2Q 2024 and up about 40% from the S$5.7b in 4Q 2019’’ said SGX Research.

“STI banks averaged 85% total returns between end-2019 and 23 Sep with indicative yields of 5.3% as of 23 Sep. This has not only supported their direct investors but also the influx of STI ETF investors amidst the economic challenges of the past 4 years’’.

For the month, DBS rose S$3.68 or 9.5% to S$42.43, UOB added S$4.20 or 13% at S$36.36 and OCBC’s gain was S$1.09 or 7.2% at S$16.28.

RHB upgraded the banks to “overweight’’

RHB on 25 Nov upgraded its call on Singapore’s banking sector to “overweight” from “neutral” in September, as it made a “buy” call for two of the three Singapore bank stocks covered.

Its top picks for the sector were UOB, with a buy call on a target price of S$40.20, and DBS, also a “buy”, with a target price of S$44.70. The research house was neutral on OCBC with a target price of S$16.80.

Noting that Singapore banking stocks could provide a “defensive shelter” for investors, RHB’s research team said: “Market volatility may persist following the 2024 US presidential election and shifting expectations on the US Federal Funds Rate (FFR) path … We think Singapore banks present a good option to hide out from this volatility – both from a domestic and regional perspective.”

Noting that non-interest income (non-II) had “surprised positively” this year, it added that this may prove to be a source of “upside surprise” moving forward, if investor sentiment remains buoyant in 2025. Furthermore, the raising of loan coverage buffers for the third quarter of 2024 provides “comfort that credit cost can be contained”, the research team added.

Macquarie initiated coverage of 11 S-REITs, 9 rated as “outperform’’

Macquarie Research last week initiated coverage on 11 Singapore real estate investment trusts (S-REITs) that it prefers amid a higher-for-longer interest rate environment.

It named top picks including data centre and industrial names, with an “outperform” rating on nine out of the 11 it listed.

S-REITs are trading at levels yielding around 6%, close to the troughs seen before the US Federal Reserve cut interest rates. Macquarie said there is potential for an upside of around 20 to 60% if the economic outlook improves.

The analysts are positive on REITs in the industrial and suburban retail sectors, as these can weather a climate of moderated rate cut expectations. A Trump administration is said to mean a slower pace of interest rate cuts.

“Given that rate cut expectations have moderated and a higher-for-longer interest rates scenario is back in play as the base case, our sector, in the order of preference are industrial, retail, office, and hospitality,” Macquarie analysts wrote.

Macquarie named CapitaLand Ascendas REIT and Keppel DC REIT as their top picks for data centre plays. Two other top picks Macquarie named are Mapletree Pan Asia Commercial Trust and Mapletree Logistics Trust, which it said are “laggards” that could benefit from a potential recovery in China.

New leverage guidelines for S-REITs

S-REITs will be subject to a minimum interest coverage ratio (ICR) of at least 1.5 times, and an aggregate leverage limit of 50% with immediate effect, in a move to standardise leverage limits across the sector.

They will also need to provide additional disclosures related to their leverages in their interim financial result announcements and annual reports starting from the financial periods ending on or after Mar 31, 2025.

The changes follow a public consultation held by the Monetary Authority of Singapore (MAS) between July and August this year.

Previously, only S-REITs that intended to increase their aggregate leverage from 45 to 50% had to comply with a minimum ICR of 2.5 times.

Secondary listing of HK-listed PC Partner on SGX

Hong Kong-listed video graphics card (VGA) maker PC Partner debuted on the SGX Mainboard by way of a secondary listing last month. It will be setting up its global headquarters in Singapore and plans to expand the Group’s footprint in the Southeast Asian region, including the set-up of a high-end VGA Cards manufacturing facility in Batam, Indonesia.

Its own brands include ZOTAC, Inno3D and Manli. The Group has been operating for around 27 years and has established offices worldwide across four main geographical markets, with customers across more than 80 countries.

The Group does not have a fixed dividend policy, but the Board may, from time to time, declare dividends if it considers that the profits justify such payments. The directors of the company proposed an interim dividend of HK$0.20 for the first half ended June 2024, up from HK$0.10 in the year-ago period.

Investing with Insight: Watch this Week’s Technical Outlook

---