Monthly wrap for November 2021: Omicron derails STI’s bid for higher ground

Date: December 1, 2021

  • The STI lost 157 points or about 5% at 3,041.29 for the month
  • In early Nov, the outlook was positive as the index crossed 3,200
  • Most of the selling came in final 3 days after discovery of Omicron
  • Wall St’s plunges were accentuated by Powell’s testimony about tapering
  • Transport and hospitality stocks took a beating, healthcare counters benefited
  • The tussle for control of SPH heated up with counter offer from Cuscaden Peak

A strong start – but a weak finish

On the first trading day of November, the Straits Times Index rose smartly to regain the 3,200 level that it had just lost a few days earlier. Hopes were high that the upward momentum and the crossing of 3,200 would enable the index to push ahead and, with the re-opening of economies everywhere together with the relaxation of measures, perhaps even challenge 3,300.

At that time, Wall St was marching up to consecutive all-time highs, the Biden administration finally managed to get its trillion-dollar infrastructure Bill through Congress and the US Federal Reserve was making all the right noises on the tapering and interest rates front.

As it turned out, the optimism lasted for about one week. The STI’s highest closing for the month was 3,263.9 that came on 8 Nov, after that the index traded within a narrow range before news of the emergence of the Omicron variant of the Covid-19 virus last Thursday sent markets everywhere reeling.

On the last trading day of November, the index plunged 79.29 points or 2.54% to 3,041.29, bringing its loss for the month to 157 points or almost 5%. Most of the selling came in the final three days, just after the Omicron announcement.

In each of these three days, a large slide in the Dow futures preceded a later plunge on Wall Street. On Friday, the first trading day following news of Omicron, the Dow Jones Industrial Average closed 950 points weaker after the futures lost more than 600 points in Asian trading.

On Tuesday when the STI recorded its biggest loss for the month, the Dow futures registered a 500-points fall, which was then followed by a 650-points slide in the Dow later that day.

Powell’s testimony added to worries

On Tuesday, stocks fell after two large biotechnology companies said their Covid-19 vaccine and treatments probably won’t be as effective against the Omicron variant as other strains, but the selloff worsened after Fed chairman Jerome Powell told the Senate Banking Committee that the Fed may speed up its “tapering” process.

Tapering refers to the Fed reducing the pace of its monthly bond purchases which have helped keep interest rates low whilst providing the market with liquidity.

“It is appropriate to consider wrapping up a few months sooner,” Powell said.

“Markets, which were already jittery on Omicron fears, were shocked by comments during Fed Chair Powell’s testimony that the Fed were looking at speeding up the timeline on taper,” wrote Cliff Hodge, chief investment officer at Cornerstone Wealth.

Omicron’s emergence

The newly discovered Omicron coronavirus variant has the world on edge, with a lot of questions surrounding its infectiousness, ability to cause serious disease and to what degree it’s able to evade the immune response from prior infection or vaccination.

The strain first identified in South Africa was dubbed a “variant of concern” last week by the World Health Organization, sparking fresh worries it could prolong the nearly two-year COVID-19 pandemic. On top of this, pharmaceutical firm Moderna’s chief Stephane Bancel was reported on Monday saying existing vaccines will be less effective for the Omicron variant.

Stocks which benefited – and those that didn’t

SGX’s online investor education portal My Gateway on Tuesday noted that airline, hospitality and bank stocks were among the most adversely impacted by the uncertainty of the Omicron variant on vaccine efficacy and containment measures. Local stocks adversely affected were SIA, SATS, SIA Engineering and Genting Singapore.

At the same time, pharmaceutical, healthcare services and healthcare products were the most defensive sectors. Top performers during the initial two days following the Omicron news were Top Glove, Medtecs and UG Healthcare.

Turnover for most of the month was mediocre, rarely more than S$1.2b per day. However, this spiked up during the closing three days when the selling intensified. On Tuesday, 3.22b units worth S$3.89b were traded, with falls in the three banks, Singtel and Wilmar International contributing the most to the dollar total.

The tussle for SPH heated up

Early in the month, Keppel revised its August offer for SPH to S$0.868 cash, 0.596 Keppel Reit unit (valued at S$0.685 as at Nov 9) and 0.782 SPH Reit unit (valued S$0.798 as at Nov 9) per SPH share. This adds up to S$S$2.351 per SPH share.

The difference between this offer and its earlier one is that Keppel has raised the cash portion by S$0.20 from S$0.668. The proportions of Keppel and SPH Reit offered are the same.

Keppel’s rival in its bid to take over SPH, a consortium known as Cuscaden Peak, later responded with two options – either S$2.36 in cash per SPH share, or S$1.602 in cash and 0.782 of an SPH Reit unit valued at S$0.798 per SPH share. At the time of offer, the latter option added up to S$2.40 per share.

SPH’s management has said it views the latest Cuscaden offer as being more attractive. In recommending that shareholders vote against Keppel’s scheme and in favour of Cuscaden’s, SPH’s chief executive Ng Yat Chung said: “The revised proposal of S$2.40 a share is the highest offer on the table’’.

How Wall St fared

On Tuesday, 2 Nov, the Dow closed above 36,000 for the first time ever. US Federal Reserve Jerome Powell – who later in the month would be reappointed as Fed chair by President Joe Biden – took great pains to reassure markets that the Fed was in no rush to raise interest rates, even as he laid out a rough timetable for the US central bank to taper its monthly bond-buying programme.

US stocks were also supported by strong corporate earnings and signs of an improving economy, albeit amidst indications that inflation was simmering. Mr Powell however, maintained his view that inflation was simply “transitory’’.