STI down 1.5% on inflation, rate hike worries

Date: March 6, 2023

  • The STI fell every day last week, losing 50 pts or 1.5% at 3,232.02.
  • US inflation and higher interest rates were the main reasons.
  • Wall St managed to rally despite rise in Treasury bond yields.
  • All eyes this week on Powell’s testimony to Congress and jobs data.
  • Singapore’s PMI rose in Feb after five months of contraction.
  • Keppel Corp shareholders dumped Sembmarine shares.
  • GK Goh owners launched bid to privatise company at S$1.26 per share.

STI fell for five straight days

The Straits Times Index last week fell on all five trading days, recording a loss of 50 points or 1.5% at 3,232.02 The reason for the weakness was the same as it’s been for several months now – concerns over the state of US inflation and the direction of interest rates.

Average daily volume amounted to S$1.3b versus S$1.1b the previous week.

Although the index closed in the red on Friday, it had earlier in the day rebounded in response to a Thursday rally on Wall St that occurred despite negative developments in the US Treasury bond market.

US 10-year yield rose above 4%, first time since Nov

On Wednesday, the 10-year yield jumped above 4% for the first time since November. It closed below that key level but rose to 4.073% Thursday. The two-year Treasury yield on Thursday was 4.902%, a new 52-week high.

Stronger-than-expected economic data and hawkish commentary from Federal Reserve officials in the past several days have increased expectations for higher rates.

On Friday, the 10-year Treasury yield slipped to 3.966%, reportedly helping the major US equity indices continue their rise.  The Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite posted weekly gains of 1.8%, 1.9%, and 2.6%, respectively.

Investors will wait for Powell’s testimony this week and Feb jobs data

The probability of a 50-basis-point hike at the Fed’s March meeting is still hovering around 26%, roughly the same level it has been for the past fortnight.

This week, Fed Chair Jerome Powell will give his semi-annual testimony to Congress on Tuesday and Wednesday. Investors will watch for clues as to what the Fed’s thoughts might be regarding interest rates and will also be awaiting the February jobs report on Friday.

Singapore’s PMI up after five months of contraction

Singapore’s manufacturing activity edged up in February to exit five months of contraction on China’s reopening boost, but analysts said it was too soon to call a recovery for the sector.

The purchasing managers’ index (PMI) – a key indicator of trends – came in at 50 in February, up 0.2 point from January. A reading over 50 indicates expansion, while one below that points to contraction.

The electronics sector PMI saw another 0.2 point uptick to a slower rate of contraction at 49.3. This was nonetheless the seventh straight month the industry shrank.

The Business Times quoted OCBC’s chief economist Selena Ling saying the improvements, led by China’s reopening and reduced recession risks in major economies such as the US and Europe were expected and in line with other regional PMIs.

“Going forward, it would be key to see further improvement in new export orders for this upward momentum to be sustainable’’ said Ms Ling. New export order gauges for manufacturing and electronics remain in contraction, suggesting that “while things are gradually turning around, it may be too early to bring out the champagne’’.

Keppel shareholders dumped Sembmarine shares on Wed

Sembmarine’s share price crashed S$0.012 or almost 9.5% to S$0.115 on Wednesday in huge volume of 2.89b shares, the first day that Keppel Corp shareholders who had earlier received Sembmarine shares as part of a merger deal could sell those shares.

The counter remained at the top of the volume and value traded lists for the rest of the week. It also continued to weaken, finishing on Friday at S$0.111 on volume of S$1.2b.

The S$4.5 billion merger of Sembmarine and Keppel O&M, a unit of Keppel, was completed on Tuesday, making the latter a wholly owned subsidiary of the company.

Under the terms of the deal, Sembmarine allotted and issued roughly 36.8 billion new shares to Keppel Corp and its shareholders. Every 1,000 Keppel shares was entitled to 19,100 in-specie Sembmarine shares.

Sembmarine recently reported its 2022 earnings. It said it turned Ebitda (earnings before interest, taxes, depreciation and amortisation)-positive in the second half of 2022.

It had also trimmed its loss for the full 2022 to $261.1 million from about $1.2 billion in 2021.

Local broker CGS-CIMB expects the enlarged Sembmarine to be profitable in 2024, assuming the group takes at least one year to reap synergies and as the new board formalises the business strategy. It has a price target of 12 cents on the stock but noted a potential catalyst for further upside from a successful integration with Keppel O&M and stronger order wins.

GK Goh owners launch bid to privatise the company at S$1.26 per share

The founders of GK Goh, namely Mr Goh Geok Khim and his son Goh Yew Lin, have launched a bid to privatise the company at S$1.26 per share. The price, which is final but could be revised “if a competitive situation arises’’, is a 38.5% premium over GK Goh’s traded price the day before the announcement was made and a similar premium over the volume-weighted average price over the previous 3, 6 and 12-months.

Investing with Insight: Watch this Week’s Technical Outlook