Monthly wrap for August 2021: Decoupled from Wall St, the STI lost 3.5%, falling below 3,200 and 3,100 to 6-month low

Date: September 1, 2021

  • STI shed 111 points to six-month low of 3,055.05 in August;
  • Wall St’s all-time highs and optimism had little impact here;
  • US market continued to bank on “transitory’’ inflation and “Goldilocks’’ scenario, although wary of Fed’s tapering;
  • Delta variant was a concern throughout the month;
  • Keppel’s bid to take SPH private was main corporate development

Not a good month for the STI as it first lost 3,200 then 3,100

At the risk of stating the obvious, August was not particularly memorable as far as the local stock market was concerned as the Straits Times Index recorded a 111-points or 3.5% loss at 3,055.05.

Technically inclined observers would know that the index had actually risen above 3,200 during the month but lost this mark in the second week. By the third and fourth weeks the 3,100 support looked increasingly under threat and after struggling to stay above this level repeatedly over the past fortnight, it was eventually lost during Tuesday’s selloff when the index fell 47.06 points.

Portfolio rebalancing, month-end window un-dressing or China’s economy?

Given that Tuesday was the last trading day of the month and that the S$2.09b traded was more than twice Monday’s volume of S$973m, there was more than a hint of some kind of month-ending “portfolio rebalancing’’ or “window undressing’’ that took place.

Conventional wisdom however, was that the selling came because of weaker-than-expected manufacturing data from China, although this reasoning didn’t gel with the fact that the Hang Seng Index gained 1.3%.

Banks were the main drivers – again

If there was month-end portfolio juggling that occurred, then banks were the main targets, which should come as no surprise given their outperformance has been the main driving force behind the STI’s gains so far this year. On Friday, the losses of 1.8%, 1.4% and 0.9% in OCBC, DBS and UOB respectively were the main drags on the STI.

The large movements in banks fits with a report by SGX’s educational portal My Gateway during August which highlighted that trading volatility in the three banks had been inching upwards, in line with their global peers.

STI at a 6-month low – and so is market cap

In this regard, an optimist might point out that even with the steep loss sustained in August, the index still stands 212 points or 7.5% higher than where it finished 2020.

On the other hand, a pessimist might argue that the STI first crossed 3,100 in early March, so its current reading could be described as a 6-month low. This is the case as far as market capitalization is concerned – the Business Times on 1 Sep reported that the Singapore market’s value of S$846.1b as at 31 Aug was the lowest since March.

Has the market decoupled from Wall St?

Last week’s market report raised the very real possibility that the local market may have decoupled from Wall Street. This suggestion came about because several all-time highs in the US market had little or no impact on daily trading here, which runs counter to the accepted market wisdom that global sentiment is shaped by events in the US, a belief that gave rise to the saying “if Wall St sneezes, the rest of the world catches a cold’’.

For August, the S&P 500, Dow Jones Industrial Average and Nasdaq rose almost 3%, just over 1% and 4%, respectively. It was the seventh consecutive monthly gain for the S&P 500

Nevertheless, if a decoupling has occurred, there is a strong likelihood that it could prove temporary so investors would be well-advised to stay attuned to the factors which underpin the US market’s continual push to new highs.

US market believes in “Goldilocks’’ economy but worries about tapering

The main factor is a belief that the US economy is recovering and that when the Federal Reserve withdraws or “tapers’’ its monetary support which is currently in the form of US$120b bond purchases, it will do so gradually.

This in turn feeds the hope that any interest rate hikes that the Fed is contemplating will be signaled well in advance and will be small and gradual.

Much of the above comes from a widespread acceptance that US inflation is benign, or “transitory’’ as the Fed has described it. This term was used by many Fed officials and was repeated once again at the central bank’s meeting at Jackson Hole, Wyoming last month.

Overall, if the economy is growing, if jobs are being created and if inflation is not a problem, then it is what is known as a “Goldilocks’’ situation that is pushing US stocks ever higher, the term referring to the porridge in the children’s tale that was “not too hot, not too cold, but just right’’.

Worries over the Delta variant lurked in the background

Throughout August, many market watchers expressed concern over whether the Delta variant of the COVID-19 virus would derail the gradual opening of economies round the world.

Most of these concerns have focused on supply chain constraints created by the Delta variant that have negatively impacted China’s economy.

Keppel offered to take SPH private

Perhaps the biggest corporate development in August was Keppel’s S$3.4b offer to take over Singapore Press Holdings (SPH).  If successful, SPH will be delisted and become a wholly-owned subsidiary of Keppel. Under the offer, for each SPH share owned, shareholders will receive S$0.668 in cash, 0.596 unit of Keppel Reit and 0.782 unit of SPH Reit.

This adds up to S$2.099 per SPH share based on prices at the time, which was an 11.6% premium to SPH’s closing share price of S$1.88 just before the deal was announced. Shareholders will also receive a final dividend for FY2021 if one is declared.

The deal is contingent on SPH shareholders granting approval for an earlier proposal to hive off the company’s media business into a not-for-profit unit. SPH ended August at S$1.94.