Monthly wrap for January 2021: Bulls held sway in first half, bears in second

Date: February 1, 2021

  • The STI was up 2% for the month;
  • All of the gains came in first two weeks when index rose 6%;
  • Drag came from Wall Street’s second half selloff;
  • US Fed chief last week delivered sobering reminder of task ahead;
  • Retail hordes blamed for increased volatility, experts cite GameStop;
  • Keppel to exit rig building, pivots to clean energy;
  • CapitaLand warned of a full-year loss.

STI gained 2% over the month

January proved to be a month of two halves – in the first two weeks it was the bulls who prevailed, propelling the Straits Times Index to above the 3,000 market at its highest closing for the month 3,004.87 on the 15th, only for the bears to then take over, bringing the index down to its latest close of 2,902.52 on Friday.

At its intra-monthly peak, the index had gained 161 points or 5.7% for the year; the downturn in the final two weeks meant that this rise was cut to 59 points or just 2% for 2021.

The market’s in the first fortnight were largely thanks to flow-through momentum from the end of 2020. Two prominent factors enabled the bulls to gain the ascendancy – hopes that the incoming US president Joe Biden would soon unveil a suitably large and effective stimulus package, and announcements by leading drug companies that their COVID-19 vaccines were ready for release worldwide.

Both developments helped push Wall Street to record highs at the end of 2020 and this continued into the early weeks of 2021, the Dow Jones Industrial Average’s repeated closing above the 30,000 mark, inspiring markets all over the world to rise in tandem.

Optimism however, waned in the second half as markets came round to the notion that even with countries having started mass vaccinations, the road ahead will be long and hard.

Wall St was reminded of the arduous road ahead

A sobering reminder that this is the case was delivered last week by the chairman of the US Federal Reserve, Jerome Powell after the year’s first Federal Open Markets Committee meeting when he said the fate of the US economy depends on the course of the pandemic and the Covid-19 vaccine rollout, but the outlook is nonetheless “highly uncertain’’.

He also said, “A resurgence in recent months of Covid-19 cases, hospitalisations and deaths is causing great hardship for millions of Americans and weighing on economic activity and job creation’’.

Despite Mr Powell pledging to keep interest rates depressed, Wall Street started to tank from last week onwards, recording its worst week since October. Friday’s selloff which saw the Dow lose 620 points or about 2% meant that the index lost 3.3% for the week, whilst the S&P 500 fell 3.3% over the five days.

Volatility could be because of increased retail participation

According to some reports, the swings and volatility that markets are currently experiencing could be due to the participation of hordes of retail investors taking the plunge and diving into the market.

In this connection, the stock that many have cited is gaming counter GameStop, which has enjoyed massive attention over the past fortnight thanks to being highlighted on prominent Internet forums.

According to the New York Times “The struggling video game retailer’s stock has been making stupefying moves this month, wild enough to raise concerns from professional investors on Wall Street to the hallways of regulators and the White House in Washington’’.

“It is all forcing hard questions about whether the stock market is in a dangerous bubble and whether a new generation of traders should be allowed to take full advantage of all the tools and free trades available on their phones, regardless of how reckless they may seem to outsiders’’.

Keppel announced a major restructuring to exit oil rig business

Among the month’s significant events was an announcement on Thursday by Keppel Corp that it is exiting the depressed rig business and will pivot to clean energy instead.

The drastic revamp is aimed at Keppel’s ailing unit Keppel Offshore & Marine (O&M). The unit’s headcount of 10,500 will be significantly reduced while it progressively exits low value-adding repairs and other activities with low bottomline contributions to focus on more profitable projects.

On Friday, Keppel Corp’s shares sank to a 2-month low, losing S$0.45 or 8.2% to S$5.01 on the news. The news of the restructuring drew mixed reactions from analysts – most believe it’s the right move to exit the rig business but they do not expect Keppel’s prospects to improve quickly.

UOB-Kay Hian and CGS-CIMB said they remain positive on the company but have lowered their price targets from S$6.30 to S$6.10 and from S$6.46 to S$6.40 respectively.

DBS in the meantime, downgraded its “buy’’ recommendation to “hold’’ but raised its target price from S$5.50 to S$5.85.

CapitaLand issued a profit warning

CapitaLand at the start of the week said it is expecting to report a loss for the full year ended Dec 31, 2020 as a result of the impact from revaluations and impairments.

Based on indicative values, the company’s share of fair value losses is expected to be S$1.55-1.65 billion, compared with the gain of S$674.8 million a year ago. This fair value loss represents about 4.7 per cent of the group’s investment properties portfolio value.

It is also expecting to recognise higher impairment losses in the range of S$800-900 million in FY2020 versus S$31.6 million in the previous year.

On Monday, CapitaLand’s shares closed S$0.13 or 3.82% lower at S$3.27. Broking firms are reported to be not overly concerned by the company’s announcement because the impairments are non-cash in nature. RHB has maintained its “buy’’ call with unchanged target price of S$3.75, while houses like UOB-Kay Hian and Lim & Tan maintained their “hold’’ recommendations.