Date: January 23, 2024
- The STI fell 1.2% to 3,152.29 in improved volume
- Wall St first weakened, then driven by tech stocks, rose to all-time highs on Friday
- Market pricing in 48% chance of March rate cut by US Fed
- Singapore’s key exports fell 1.5% in December
- Cordlife probe finds temperature in one tank went as high as 20.4 deg C in 2021
- AEM reported inventory shortfall due to human error, brokers downgraded the stock
- Most traded index stocks have high valuations: SGX Research
A disappointing week as the STI failed to challenge 3,200 level
It was yet another uninspiring week for traders in the local stock market as the Straits Times Index continued to display an inability to break convincingly above the 3,200 level despite Wall Street’s strength in the latter half of the week that took the Dow Jones Industrial Average and S&P 500 to all-time highs.
However, the US market was soft in the week’s first half as traders there took their cues from ambiguous signals by US Federal Reserve officials about rate cuts, whilst the latest US economic data also didn’t provide any firm clues as to the direction of interest rates.
The only consolation – if it could be described as such – was that volume here improved from a daily total of S$844m the week before to S$928m. However, the bulk of this improvement came on Wednesday when the STI fell 1.4% amidst total volume of S$1.21b done that day.
The week got off to a promising start when the index closed about 8 points higher at 3,199.42, giving rise to hopes that it would clear 3,200, a level that had been lost on 3 Jan. This was not to be – at the end of the week, the STI stood at 3,152.29 for a net loss of 39 points or 1.2%.
Over on Wall St – Dow and S&P 500 close Friday at all-time highs, driven by tech stocks
It was a tale of two halves for Wall St with stocks and bonds coming under pressure on Tuesday after Fed governor Christopher Waller said that until officials are relatively convinced inflation is sustainably near the 2% target, the Fed won’t start rate cuts.
In the bond world, the 10- year yield rose 0.115 percentage point to 4.064% on Tuesday, marking its largest gain since Dec. 8.
However on Thursday, Atlanta Fed President Raphael Bostic said he expects the central bank to start implementing rate cuts earlier than he thought.
On Friday, the Dow Jones Industrial Average gained 395 points or 1.1% at 37,863.80, marking a record close for the second time in 2024. The S&P 500 gained 1.2%, marking a new record close at 4,839.81—and its highest since Jan. 3, 2022. The tech-heavy Nasdaq Composite advanced 1.7%.
The top S&P 500 gainers so far this year have been big tech companies, including Juniper Networks, Nvidia, and Advanced Micro Devices. Last week, two factors–TSMC’s healthy revenue growth outlook and Bank of America’s upgraded rating on Apple stock–drove the index’s performance.
Market pricing in 48% chance of March rate cut
According to CME’s FedWatch Tool, although the futures market is pricing in a 97.4% chance the Fed will keep rates steady at its 31 Jan meeting, there is a 48% chance that the central bank will cut rates by 25 basis points at its 20 March meeting.
Singapore’s key exports fell 1.5% in December
Singapore’s non-oil domestic exports (NODX) shrank 1.5% year on year (yoy) in December, following a continued decline in electronics exports.
The December figure was a reversal of the previous month’s 1% rise, and in contrast with the 3% growth that private-sector economists polled by Bloomberg were expecting.
The contraction was unexpected, said private-sector economists, who had generally been expecting NODX to post positive growth for December due to the low year-ago base.
OCBC chief economist Selena Ling was quoted by The Business Times (BT) saying “This disappointment suggests that the trade recovery trajectory remains somewhat bumpy in the near-term’’, whilst DBS economist Chua Han Teng noted that the full-year NODX performance, which declined 13.1% yoy, made 2023 the worst-performing year since 2001.
Cordlife probe finds temperature in one tank went as high as 20.4 deg C in 2021
BT on Monday reported that one storage tank at cord-blood banker Cordlife Group was found to have hit a temperature as high as 20.4 degrees Celsius in 2021, which was way over both international standards, as well as the company’s internal acceptable temperature range.
The newspaper said the information came in an internal report which scrutinised lab reports and work communications of key personnel in Cordlife’s laboratory, as the company attempts to determine why critical incidents or “temperature excursions” involving several cord blood units (CBU) storage tanks were not immediately reported and escalated.
Among management’s discoveries – cord blood samples were moved without proper records and documentation, and a “significant number of samples” may have been moved to a dry shipper that recorded instances of irregular temperatures in 2019.
Dry shippers are not meant for permanent storage but are designed for the safe shipment of specimens.
Senior members of management were only made aware that there were samples in the dry shipper in November last year, according to the report, which was prepared by Cordlife in response to private queries from market regulator Singapore Exchange Regulation (SGX RegCo).
On Wednesday, the company said it would send the cord-blood samples from all affected tanks to a third-party laboratory by Thursday, 18 Jan. Seven of its 22 cord-blood storage tanks had earlier been found to be kept at temperatures above acceptable limits by the Ministry of Health (MOH) in November last year.
The testing of each sample batch may take three to six weeks to be completed, depending on whether a repeat test of samples from the same tank is needed, said Cordlife.
AEM reported inventory shortfall due to human error
Semiconductor equipment maker AEM Holdings last week said that it has found a shortfall in the group’s inventories following an internal stock-taking exercise, which it expects to negatively impact the group’s profitability for FY2023.
As at end-September last year, the group’s inventories were stated to be worth S$358.6 million. This was shared in an investor update released on Nov 9, 2023.
However, a preliminary estimate suggests that the group’s inventories are anticipated to be 5 to 7 per cent lower than this figure, said AEM. It noted that the internal stock-taking exercise is still ongoing, and that it had taken into account “the ordinary and usual course of inventory movement”. It attributed the shortfall to human error.
AEM expects the shortfall to have a negative impact on the group’s profitability for the financial year ended Dec 31, 2023. It will issue its unaudited condensed interim financial statements for the full year on or before Feb 29, 2024.
Brokers downgraded AEM
“While AEM has proven itself over the years, the inventory shortfall mistake has impacted our confidence in management’s execution, and while we believe the worst should be over, we now only expect a more substantial recovery in FY2025,” said Maybank as it lowered its target price from S$3.76 to S$3.26.
The broker expects the inventory shortfall will lead to an impairment of about S$18 million to S$25 million for FY2023’s results, which is likely to result in an overall loss. It slashed the earnings forecast for FY2023 to a negative S$12.7 million, from a positive S$9.6 million.
Amid a muted recovery for the manufacturer, Maybank also cut the earnings forecasts for FY2024 by 33.6 per cent, and by 21.9 per cent for FY2025.
Citi Research estimated the loss to be between S$14 million and S$20 million on a post-tax basis, representing 46 to 65% of its current FY2023 profit forecasts.
While Citi has maintained its “buy” call with a price target of S$3.78, DBS Group Research has kept its “hold” call with a target of S$3.
DBS expects AEM to sink deeper into the red with more than 2% trimmed off revenue estimates, if the company is unable to fulfil any orders due to the shortfall in its inventory. The research house, however, highlighted a long-term positive view on the semiconductor player’s superiority in system level test.
Over the week AEM’s shares lost S$0.50 or 14.7% at S$2.90.
Most traded index stocks have high valuations: SGX Research
Some of the most traded index stocks, such as Yangzijiang Shipbuilding, Dyna-Mac and Food Empire, have high P/B ratios compared to their historical averages, indicating strong market valuation said SGX Research in its latest Market Update.
Meanwhile others, such as Top Glove, Medtecs Int and AEM, currently have low P/B ratios relative to their performance over the past 5 years.
The five index stocks with the highest net institutional inflow over the past 12 sessions were SATS, Yangzijiang Shipbuilding, Venture, Thai Bev and ST Engineering. Stocks that increased their average daily turnover over these 12 sessions compared to the 2023 year, include Thai Bev, SATS, AEM, Frencken, NIO, Medtecs Int and Food Empire.
