Date: June 1, 2021
- The STI lost 54 points or 1.7% at 3.164.28 in May;
- Most of the loss came in the first fortnight after new waves of infections and new restrictions were announced locally;
- The bounce started in mid-month;
- Wall St remained firm despite inflation worries and Fed taper talk;
- Local market’s capitalization fell 1.3% to S$856.2b;
- Catalists’s market cap rose S$300m to S$13b;
- Among the significant corporate developments: Restructurings announced by SPH, Singtel and SemCorp Industries.
The Index’s performance in May was V-shaped
The Straits Times Index fell 54 points or 1.7% to 3,164.28 in a turbulent month that started with prices coming under pressure because of a sudden resurgence of COVID-19 cases around the world as well as locally before rebounding in line with Wall Street on hopes that the economic recovery of the past few months is still intact.
The index suffered its greatest falls in the second week after the Government announced a fresh round of curbs following a rise in new virus cases. On Friday 14 May, the index plunged almost 100 points intraday when the announcement was made as worries spread of a second “circuit breaker’’.
There was a rebound that started in the middle of the month but as the month drew to a close however, it was capped by worries that inflation might be simmering beneath the surface, and that interest rates will have to be raised as a result.
Also, a concern were hints dropped throughout the month by the US Federal Reserve that it might have to taper, or reduce, its bond purchases soon.
All this added up to a V-shaped month for the STI. According to the SGX’s investor education portal My Gateway, the total returns of the STI have taken on this shape in May, with a 4.3% decline in total return over the first two weeks, followed by a 4.1% recovery over the subsequent two weeks.
In its report “STI rebounds 4% since 14 May, continues to outpace global benchmarks in YTD”, My Gateway said over the first two weeks of May, Singapore Airlines, Sembcorp Industries, Genting Singapore and SATS were among the five least performers of the STI, which subsequently emerged as the four best STI performers over the following two weeks.
“Resilient business investment and regional trade has supported Banks, Industrial and Manufacturing-related stocks over the first five months of 2021. On more of a microeconomic front, corporate reviews and restructures to enhance shareholder value have continued into 2021. This has seen the STI generate a 13.5% total return for the 2021 year to 28 May, outpacing the FTSE All World Index gain of 11.3%” said My Gateway.
Wall Street was the main barometer
As always, the main barometers for investors were Wall Street and the US Treasury market. Despite the occasional wobble US stocks held their ground, supported by earnings announcements and dovish comments by US Federal Reserve officials – at least in the early part of the month.
Minutes from the Federal Reserve’s latest Open Markets Committee meeting showed that policy makers thought it may be appropriate to start talking about reducing bond purchases if economic activity continues to pick up.
“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” the meeting summary stated.
During the month, the Federal Reserve’s key measure of inflation, the personal consumer expenditure index or PCE, leapt to a rate not seen in almost 13 years, reflecting an economy that is running hotter as the reopening from COVID lockdowns and massive federal fiscal stimulus stokes growth.
US Treasury yields hovered around the 1.6% level for most of the month, ending at 1.617%.
Market cap fell 1.3% to S$856.2b
Market capitalization amounted to S$856.2b, which is S$10.9b down from the figure of S$867.1b at the end of April. On a year-to-year basis however, there was a 14.7% or S$110b increase in market cap.
The mainboard’s market value fell by S$11.2b in May, whilst that of Catalist rose by S$300m to S$13b. Among the banks, OCBC’s S$802.4m gain led the way, followed by DBS’s S$488.3m. At the other end of the spectrum, agri-business firm Wilmar International was the largest loser, with its market cap dropping S$2.88b to S$30.54b.
Corporate restructurings: SPH
Among the corporate developments of interest was media and property firm Singapore Press Holdings’ (SPH’s) restructuring plan announced early in the month which will see its poorly-performing media assets placed in a not-for-profit entity in the form of a company limited by guarantee.
SPH said this will free the media business from “the expectations of shareholders for a fair financial return and regular dividends” and give the company “greater financial flexibility to tailor its capital and shareholding structure to seize strategic growth opportunities across other businesses in order to maximize returns for shareholders”.
SPH’s shares collapsed S$0.27 or 15% to S$1.52 on volume of 92.4m the day after the news was announced but have since recovered. Analysts have described the move as long overdue and most have expressed optimism over the company’s fortunes now that the drag from the media business will be removed. SPH’s share price ended the month at S$1.75.
Corporate restructurings: Singtel
Singtel said it is looking to unlock the value of its infrastructure assets which consists of towers, satellites, subsea cables and data centres.
The telco said its strategic review will look to bridge the valuation gap between individual assets and the integrated telco assets and to monetize assets that do not fit with, or are less important to, the group’s vision.
After an early slide following the announcement, Singtel’s shares were largely unchanged and ended May at S$2.41.
Corporate restructurings; SembCorp Industries
SembCorp Industries (SCI) said it aims to grow profit contribution from its sustainable solutions portfolio from 40% currently to 70% by 2025 as part of the group’s new strategic plan to transform its portfolio “from brown to green”.
It said it targets to achieve a compounded annual growth rate (CAGR) of 30% for its renewable energy portfolio by 2025 and a CAGR of 10% for its integrated urban solutions portfolio.
Analysts have mostly recommended a “buy” on the stock and it had gained S$0.10 or 4.7% from the time of the announcement to end at S$2.23 at the end of May.
