Stocks get a reprieve from trade war woes

Date: June 11, 2019

  • The STI gained 48.53 points or 1.6% over the week at 3,116.29;
  • Main driving force was hope of a US interest rate cut;
  • Also helping was hope that US might delay tariffs on Mexico;
  • Reits were the main beneficiaries of possibly lower interest rates;
  • Property stocks saw some interest on land supply news


US-China trade war took a back seat for now as rate cut hopes kick in

Investors must by now be getting weary of reading week in, week out that markets were under pressure from uncertainty created by the US-China trade conflict. So it is that most players would have been relieved last week to see prices bounce after the US Federal Reserve opened the door to cutting interest rates, an about-face from its position 2-3 months ago when everyone was talking about more rate hikes.

Fed Chair Jerome H. Powell and other Fed officials said they may have to lower interest rates in coming months to keep the economic expansion going — and counter any economic harm from US President Trump’s escalating trade war.

The Fed is likely to signal its next step at its policy meeting this month, and markets are forecasting at least three interest-rate cuts by the end of the year. Powell said this week at a Fed conference in Chicago that the Fed is prepared to take “appropriate” action to keep the economy from a downturn, and stocks surged as a result.

According to most reports, such a move would be highly unusual because it would come at a time when the economy has been growing quickly, and inflation and unemployment are low.

Meanwhile on the trade front, other than China denying that it has been enjoying an unfair advantage in its dealings with the US, latest developments last week include the US targeting Chinese students in America, and renewed threats of tariffs on Mexico if the latter does not agree to the US’s demands on immigration. As the weekend approached, signs emerged that the US might delay its move, and this helped stocks gain ground.

The Fed’s hints helped the Straits Times Index rise 48.53 points or 1.6% over the week to 3,116.29, its first weekly gain in five weeks. Of this, 20.11 points came on Friday, albeit in poor volume of just 545m units worth S$802m.

Rate cut hopes boost Reits

In the local market, news that interest rates could be heading lower pushed Reit prices higher. On Thursday, turnover amounted to 1.14b units worth S$1.54b, about 50% more than the average daily volume of S$1b, largely thanks to heightened trading of Reits. CapitaLand Mall Trust was that day’s biggest Reit gainer when it rose S$0.11 or 4.5% to S$2.57 with 24.5 million units done. However, as noted above, volume dropped off sharply on Friday by almost half.

Government land supply news boosts property developers

On Thursday the government announced it will reduce private housing supply from its land sales programme for the second half of the year, amid continued signs of muted demand and a glut in supply.

The Ministry of National Development said there are around 44,000 private housing units in the pipeline. This comprises around 39,000 unsold units from government land sales and en-bloc sale sites with planning approval, and an additional 5,000 units from sites that are pending planning approval.

Another 24,000 existing private housing units remain vacant.

The decline in demand follows the introduction of property market cooling measures in July last year. Overall transaction volume fell for the third straight quarter in the first quarter of this year, while developers’ demand for land also moderated.

Share buybacks at 9-month high

In May 2019, 24 primary-listed stocks on SGX repurchased close to 40 million shares with a total consideration of S$123 million. This was up from S$36 million in April 2019 and down from S$135 million in May 2018.

SGX also announced that 13 companies commenced new buyback mandates in the month of May 2019: DBS, OCBC, Sing Tech Engineering, China Sunsine Chemical Holdings, AEM Holdings, Japfa, Olam Int, Raffles Medical, Koufu, Jumbo, Cheung Woh Tech, Aspen (Group) Holdings & Trek 2000 Int.

“The May 2019 buyback consideration was led by DBS & OCBC, which contributed more than three-quarters of the total consideration. The previous year’s mandate saw DBS buy back 0.478% of its shares and OCBC buy back 0.378% of its shares’’ said SGX.

YuuZoo reported a new investor

Troubled social media company YuuZoo Networks Group last week said although its shares remain suspended from trading it has nevertheless signed an investment agreement for the sale of a 3.23% stake in its fully-owned payment subsidiary YuuPay Secure for US$5m to an unnamed Indonesian party.

How robust is the US economy?

In a commentary “Why the US economy is worse than it looks’’ economists Jared Bernstein, James Parrot and Mark Zandi said rising inequality, increasing economic insecurity, a shortage of affordable housing and the fading stimulus from Trump’s tax cuts indicate that there are simmering problems with the US economy. “The momentum from the deficit-financed tax cut has thus proved strong enough to overcome (the problems) but that momentum is slowing, raising the prospect of a stalled economy still struggling with a host of structural problems’’.