Prices drifted sideways in thin volume

Date: April 17, 2023

  • The STI rose only 2 points to 3,302.66
  • Average daily turnover was a low S$802m
  • On Wall St, inflation worries appear to have eased – for now
  • Futures market pricing in 83% chance of a 25-basis rate hike in May
  • SGX RegCo issued a Trade with Caution notice on Digilife Tech
  • Ong family makes privatisation offer for Lian Beng at S$0.62 per share
  • Strides-Premier merger no threat to ComfortDelgro: BT report
  • MAS surprises by making no change to Sing dollar policy
  • 1Q GDP growth was only 0.1% year-on-year


A quiet week where prices drifted sideways in low volume

With investors casting a wary eye in Wall St’s direction, the local stock market underwent a relatively quiet week in which prices drifted sideways in thin volume. The Straits Times Index, which had risen consecutively for the four previous weeks gaining 3.9% along the way, last week added just 2 points at 3,302.66.

Average daily volume amounted to S$802m, versus S$1.19b in each of the preceding two weeks.

US inflation worries appear to have eased – or have they?

On Wednesday came the announcement that US consumer prices climbed just 0.1% in March, slowing to a 5% annual pace from February’s 6% rate. But core prices, which are considered a better indicator of underlying inflation, climbed 0.4% in March and ticked up to a 5.6% annual pace from February’s annual pace of 5.5%.

Although this data was considered inconclusive at the time, on Thursday, stocks rallied after news that the US producer price index, or PPI, showed companies’ costs rose 2.7% year over year, below expectations of 3% and the biggest drop in three years.

The index measures the change in producers’ selling prices. A slowdown in the rise of companies’ costs could equate to rebounding profit margins, which would support earnings.

Taken with Wednesday’s cooler-than-expected reading on consumer prices, investors are now hoping that the slowdown in inflation prompts the Federal Reserve to stop hiking interest rates, which are meant to lower inflation by reducing economic demand.

Futures market pricing in 83% probability that May’s rate hike will be 25 basis points

Central-bank officials however have also long emphasized that they will need to see several months of cooling price growth before they pause or change course.

That would suggest that as long as other aspects of the economy remain stable between now and May, a quarter-percentage-point rate hike appears likely. This is what the future market expects with the current probability of a 25-basis points rate hike standing at 83%.

“We do not think today’s report materially changes the outlook for U.S. monetary policy,” Wells Fargo economists Sarah House and Michael Pugliese wrote regarding the CPI release. “We still expect a 25-points rate hike from the FOMC at the conclusion of its next meeting on May 3.”

Digilife Tech issued with a Trade with Caution notice

Singapore Exchange Regulation (SGX RegCo) on Wednesday issued a “Trade with Caution’’ alert on shares of Digilife Technologies after latter’s share price rose by 157% or S$1.76, from S$1.12 on 6 Jan to S$2.88 on 11 April.

SGX RegCo noted that over the same period, the STI only gained 21.11 points or 0.6%. It said the between 1 March and 11 April, Digilife Tech’s share buybacks contributed about 70.6% of the stock’s “buy’’ volume and that over this period, the price gained S$1.08 or 60%.

This has resulted in the company’s market capitalisation rising S$38.6m versus the net asset value of S$30m as at 31 Dec 2022. The regulator also highlighted that Digilife was previous known as Sevak Ltd before a name change in 2021 and that as Sevak it had been issued with a “Trade with Caution’’ alert in Jan 2019 in relation to its share buyback activities.

On Thursday, Digilife’s shares crashed S$0.41 or 14.3% to S$2.45 on volume of 7,300 shares traded. On Friday they fell to an intraday low of S$2.25 but eventually closed unchanged at S$2.45 on volume of 3,400 traded.

Ong family makes privatisation offer for Lian Beng at S$0.62 per share

Construction firm Lian Beng’s controlling Ong family, through investment holding company OSC Capital, last week made a voluntary unconditional cash offer to buy out minority shareholders at S$0.62 per share.

This is less than half of Lian Beng group’s net asset value (NAV), which was about S$1.54 per share as at end-November 2022.

After the offer is completed, the company will be a wholly-owned subsidiary and delisted.

Although the offer price is far below the NAV, it is 8.8% higher than the counter’s last traded price of S$0.57 before the announcement. It also represents a 15.7%-18.8% premium over the weighted average price over the past 1-6 months.

The Ong family owns 69.56% of Lian Beng. After the announcement, the stock rose to S$0.66 at which price it closed the week.

Strides-Premier merger poses no threat to ComfortDelgro: analysts

The Business Times on Saturday reported analysts from UOB Kay Hian (UOBKH) and DBS Research saying they are still positive on ComfortDelgro despite last week’s announcement that two of its competitors, SMRT-owned Strides Taxi and Premier Taxis will be merging to form Singapore’s second-largest taxi operator.

“With ComfortDelgro maintaining command over the majority market shares, analysts see no downsides from the merger’’ said the report. “The newly-formed Strides-Premier will own 2,052 taxis, less than one-third pf ComfortDelgro’s fleet of 8,741’’.

The report quoted UOBKH’s Llelleythan Tan saying the merger was not surprising given stiff competition from the ride-hailing market, shortage of tax drivers and growing inflation.

DBS noted that the merger could potentially reduce competition and promote profitability, resulting in a more sustainable business environment. In a Friday note, it said ComfortDelgro’s shares have bottomed out and issued a “buy’’ with a S$1.66 target.

“With the share price trading at below one time price-to-book and with improving profitability, we believe confidence should return over time’’ said DBS. ComfortDelgro’s shares on Friday unchanged at S$1.20 on volume of 7.7m.

In a surprise move, MAS maintained Sing dollar stance

The Monetary Authority of Singapore (MAS), which uses the Singapore dollar nominal effective exchange rate (S$Neer) as its main policy tool, said on Friday that it will maintain the current rate of currency appreciation – a stance that will continue to blunt the impact of rising import prices.

MAS’ pause is a surprise given that most private economists in recent private polls expected the central bank to go for a sixth round of policy tightening in the current cycle that started in October 2021.

MAS said in its biannual monetary policy statement: “Singapore’s GDP (gross domestic product) growth is projected to be below trend this year. With intensifying risks to global growth, the domestic economic slowdown could be deeper than anticipated…

“MAS will therefore maintain the prevailing rate of appreciation of the S$Neer policy band. There will be no change to its width and the level at which it is centred. This policy stance will continue to reduce imported inflation and help curb domestic cost pressures.”

DBS senior economist Irvin Seah was quoted by the Business Times saying “Growth momentum has slowed significantly while inflation has peaked and is likely to moderate, going forward’’.

“The changing risk dynamics between growth and inflation has prompted MAS to rebalance its exchange rate policy’’.

Singapore’s 1Q GDP growth was only 0.1% year-on-year

Advance estimates released on Friday showed that the Singapore economy grew just 0.1 per cent year on year in the first quarter, down sharply from the 2.1 per cent growth in the previous quarter.

On a quarter-on-quarter seasonally adjusted basis, the economy shrank 0.7 per cent in the first three months of 2023, said the Ministry of Trade and Industry.

The ministry already expects Singapore’s GDP growth to step down to 0.5 per cent to 2.5 per cent in 2023, from 3.6 per cent in 2022.

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