Monthly wrap for January 2022: “As goes January, so goes the year”?

Date: February 3, 2022

  • The STI gained 126 points or 4% in January at 3,249.59
  • The rise came despite Wall St’s nervousness and correction
  • US investors worried about number of rate hikes in 2022
  • DBS and UOB made major regional asset purchases in Jan
  • Three SPACs listed, only Vertex held its ground

Will January’s 4% gain be mirrored in the whole year’s performance?

There’s an old saying on Wall Street that “as goes January, so goes the year.” In other words, what happens in the financial markets in the first few weeks of the calendar year tends to set the tone for the rest of the year ahead. As far as local investors are concerned, most will surely be hoping that the saying will apply in 2022, given that for the past month, the Straits Times Index has risen 124 points or 4% to 3,249.59.

That the full-year’s performance followed that of January was certainly the case in 2021 when the STI added 9.8% over the 12 months versus 2% in January. In favour of a repeat this year is the fact that economies are recovering and so should earnings. The biggest stumbling block however, would be interest rates, specifically, how many rate hikes the market would have to deal with.

Wall Street entered correction territory in Jan

For one, Wall St so far in 2022 has not been exhibiting the swagger it did a year ago, falling victim to inflation and interest rate worries – even though it knew full well for many months that rates would have to rise and that the US Federal Reserve would have to “taper’’ or reduce its monetary injections that have been a major source of liquidity support for the US financial markets.

Consider that if according to investing convention a market correction is defined as a decline of ten percent or more from its most recent peak, then given that the S&P 500 Index closed 2021 at 4,766 and dropped to an intraday low of 4,223 on January 24, 2022, the loss of 11.4% meant that it entered correction territory.

Inflation is not “transitory’’, so how many rate hikes ahead?

Part of the reason for the nervousness is that the Fed for most of the second half of 2021 described inflation as merely “transitory’’ even though the data suggested otherwise. It was not until Nov 2021 that the Fed decided to admit defeat and stated that inflation was not fleeting but was instead a very real problem that had to be addressed.

Confirmation of this shift came last week at the first Federal Open Markets Committee meeting of 2022 when the Fed said with inflation well above 2 percent and a strong labour market, it expects “it will soon be appropriate to raise the target range for the federal funds rate’’, adding “the Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March’’.

Fed Chairman Jerome Powell also made it clear that it’s not the central bank’s job to put a floor under the market—the so-called Fed put. He remarked that asset prices remain “somewhat elevated,” and noted that households had plenty of savings and could withstand further declines before a stock market correction begins to be a meaningful problem for the US economy.

According to some commentators, Wall St was disappointed that the US central bank did not signal the number of rate hikes that might be expected this year, which means that it could well be four or even five instead of the three that stock market bulls are wishing for.

As a result, most observers now expect a volatile six weeks ahead until the next Fed meeting in March, at which a rate hike is widely anticipated. As of the end of last week, the federal funds futures market is pricing in an 87.6% chance that there will be a 25-basis points rate hike after the March meeting.

Local developments in January

a) The banks

Throughout the month, the main index plays were the banks, led mainly by UOB which gained S$3.06 or 11.3% at S$29.96. DBS rose S$2.54 or 7.8% to S$35.20 and OCBC added S$1.07 or S$9.4% at S$12.47.

UOB during the month announced it has agreed to buy Citigroup’s consumer banking franchise in Indonesia, Malaysia, Thailand and Vietnam for about $4.915 billion.

The move will enable Singapore’s third-largest bank to “scale up its business in four key regional markets at one go” and accelerate its growth targets by five years, UOB deputy chairman and chief executive officer Wee Ee Cheong.

DBS later DBS Group has agreed to buy Citigroup’s consumer business in Taiwan for about S$956m, making the Singapore bank Taiwan’s largest foreign bank by assets.

DBS said in a statement that it will take over 3,500 staff in Citi’s Taiwanese business that has 2.7 million credit cards, 500,000 deposit and wealth customers and 45 branches.

“Citi Consumer Taiwan is a highly attractive, high-returns business that is expected to contribute at least S$250 million annually in net profit to DBS after Covid-19 recovery,” DBS chief executive Piyush Gupta said in a statement.

b) Net institutional inflows amount to S$1.06b in Jan

The Singapore Exchange’s investor education portal My Gateway reported that up to 27 Jan, net institutional inflows to the local market amounted to S$1.06b. For the five sessions 21-27 Jan, the five STI components that enjoyed the highest net institutional inflows were OCBC, Singtel, UOB, DBS and SGX.

The five stocks that saw the greatest net outflows were Mapletree Industrial Trust, Keppel DC Reit, ComfortDelgro, iFAST and Genting Singapore.

c) Three SPACs listed in Jan

Three Special Purpose Acquisition Companies listed in January – Vertex Technology, Pegasus Asia and Novus Tellus. All were offered at S$5 per share but only Vertex managed to stay at this level at the end of the month – Pegasus ended January at S$4.80 whilst Novus ended at S$4.90.