Monthly wrap for September 2021: Stuck in a trading range

Date: October 1, 2021

  • Wall St suffered from “The September Effect’’ with all its major indices weakening over the month
  • The Straits Times Index was range-bound between 3,050-3,100
  • Singapore’s market cap was down 0.1% at S$845.5b
  • SGX introduced SPAC listing rules
  • SPH shareholders approved plans to set up separate media unit
  • Wall St’s “taper tantrums’’, Fed statements and China Evergrande provided the main external drivers
  • October may not be much different from Sep

Online resource Investopedia said of last month: “One of the historical realities of the stock market is that it typically has performed poorest during the month of September’’.

It goes on to say that the “Stock Trader’s Almanac” reports that, on average, September is the month when the US stock market’s three leading indexes usually perform the poorest.

September was not a good month for US stocks

This underperformance was indeed the case as far as Wall Street was concerned. The S&P 500 fell 4.8% for the month, but still managed to eke out a gain for the third quarter. Historically, when the index declines more than 2% in September, it sees a 0.4% decline in October, on average.

The Dow suffered a 4.3% decline for the month and was the worst performer of the three major U.S. indexes for the third quarter overall. The index ended the quarter down almost 2%—which marks its largest quarterly point and percentage decline since the first quarter of 2020.

The STI traded between 3,050-3,100 for most of the month

Some have dubbed this annual drop-off as the ‘September Effect’’’ said Investopedia, adding that this doesn’t apply to only the US but most other markets as well.

There is no widely accepted cause for this underperformance in the 9th month, but whether or not you subscribe to this view, the Sep effect was very much in evidence as far as local equities were concerned, with the Straits Times Index unable to mount a serious challenge on the 3,100 level.

Over the course of the four weeks, the index recorded a 31 points or 1% rise to 3,086.7, buffeted by various forces ranging from US tapering concerns to supply chain constraints that would hurt corporate earnings to contagion worries from the collapse of giant Chinese property developer China Evergrande.

However, the index’s inability to breach 3,100 should be viewed together with the fact that it did not fall below 3,050 for long, a level which a chart technician might aptly describe as being where “strong support’’ lies.

Perhaps another way to summarize the local market’s performance for Sep is that the market was trapped in a trading range that for the STI spanned 3,050 to 3,100.

Singapore’s market cap slipped 0.1% to S$845.5b

The market value of the 665 companies listed on the Singapore Exchange amounted to S$845.5b last month, down marginally from August’s S$846.1b. This was the lowest sum since February’s S$843.1b.

The 30 components of the STI had a market value of S$508.2b, up 0.5% from August. Mainboard stocks were valued at S$833.5b and Catalist at S$12b.

Companies that recorded the biggest gains in their market caps were Singtel, Hongkong Land and the banks. Glove maker Top Glove notched up the largest decline, its market value falling S$3.1b in Sep.

Significant local developments

Among the developments of interest was that the Singapore Exchange introduced new measures to entice Special Purpose Acquisition Companies or SPACs to list here. Sometimes known as “blank-cheque’’ companies, these are entities that first raise money from an IPO before looking for a business to buy.

Another significant development was that shareholders of Singapore Press Holdings approved resolutions that will see the media business hived off into a separate, not-for-profit entity, thus paving the way for a privatisation by Keppel Corp.

Wall Street, “taper tantrums’’ and the FOMC

The month kicked off with US stocks plunging sharply because of a shockingly weak August jobs report, where the economy created almost half a million jobs less than what had been expected.

The major US indices recorded five consecutive falls after release of the report, a rare occurrence for investors grown more accustomed to seeing the indices rise to successive all-time highs this year.

Also notable was that several inflation indicators such as the US producer price index and wages ticked higher, raising concerns that the Federal Reserve might start “tapering’’ its monthly bond purchases sooner rather than later, and possibly at a faster pace than previously indicated.

At the Sep Federal Open Markets Committee (FOMC) meeting, the central bank said tapering could “soon be warranted’’ if the economy progresses broadly as expected.

At the time this statement was made, observers interpreted this to be within expectations because Wall St rallied; however, on Tuesday and Thursday last week when prices fell sharply, reports said this was the market exhibiting a “taper tantrum’’.

A “taper tantrum” is when the Federal Reserve indicates that it will taper, or reduce, the amount in bonds it is buying a month as the economy recovers and needs less support.

This last happened in 2013, several years after the financial crisis, when the Fed had decided to gradually phase out its bond buying program. Less money moving into the bond market lowers bond prices and raises their yields. Higher yields on long-dated bonds make future profits less valuable, which dents stock prices.

The 10-year Treasury yield gained about 20 basis points at 1.52% over the month.

Will October be any different?

DBS’s equity research strategist Yeo Kee Yan was quoted in the Business Times on Friday: “We expect the STI to remain range-bound between 3,000 to 3,200 for the month of October as we wait to see how Singapore emerges from the current surge in Covid-19 cases, the Fed’s view on the economic situation…as well as its tone on tapering and raising rates’’.

Maybank Kim Eng in a 30 Sep Singapore Strategy report said the local market has seen a flurry of mergers & acquisitions, restructurings & privatisations this year. “We see four major catalysts that could propel more deals: (a) pandemic acceleration of structural shifts (b) distressed businesses (c) integration of green strategies and (d) government initiatives. We think GLCs, growth SMIDs and late-stage startups could lead the charge’’.

Earlier in the month, the broker raised its year-end target for the STI from 3,537 to 3,650.