The STI rose 1% to regain 3,200

Date: October 25, 2021

  • Wall St’s all-time highs helped push the STI above 3,200
  • Investors in the US focused mainly on earnings, shrugging off rise in bond yields
  • Volume in local market was low, gains not widespread despite index’s rise
  • China’s 3Q at 4.9% came below expectations
  • Sembmarine warned of large loss, stock falls below Temasek’s S$0.08 takeover offer price
  • Raffles Education under investigation by MAS, CAD

The STI managed to regain the 3,200 mark lost in August

Underpinned by a firm Wall Street where the S&P 500 rose for seven consecutive sessions and reached a new all-time high on Thursday which was then followed by an all-time high for the Dow Jones Industrial Average on Friday, the Straits Times Index enjoyed a relatively firm week, regaining the 3,200 level it had lost about two months ago.

It took two tries before 3,200 was breached, the first on Tuesday when the index enjoyed its largest gain of the week, and again on Friday when it made the breakthrough late in the session.

Over the course of the five days, the STI gained 32 points or just over 1% to end at 3,205.14.

Gains were not widespread, volume was nothing to shout about

However, it must be said that the index’s gains were rarely reflected throughout the broader market. For example, on Tuesday when the index rose 25 points to close at 3,199, there were only 286 stocks that rose versus 216 that fell – not as wide a gap that the index’s reading might suggest.

The same lack of breadth has also been evident in many other sessions and applies even when the STI falls sharply.

The reason is the reliance on a small handful of index heavyweights whose movements have the greatest effect on the STI’s reading. Most of the time, these would be the banks – for example, Tuesday’s index gain came when DBS enjoyed a large S$0.74 or 2.4% jump to S$31.22 while UOB and OCBC each rose 0.6%.

Volume, however, has not been great. On Friday when the STI rose 16.64 points, turnover amounted to 1.44b units worth S$826.8m, the lowest for the week. The highest was Tuesday’s 1.83b units valued at S$1.25b.

Sembmarine and Raffles Education were in the news

Among the more significant developments last week were an announcement by Sembmarine that it expects to post “significant losses” in its second half ending Dec 31, 2021, potentially in the range of the S$647 million loss in the first six months of the year, and a suspension in trading of Raffles Education that was followed by an announcement that the company is under investigation for a possible offence under section 203 of the Securities and Futures Act, which covers continuous disclosures.

Sembmarine said the expected loss is mainly due to the increased costs to complete its projects, as well as the losses arising from the added delays. Even though it has made some headway in managing project completion delays, the pandemic continues to impact performance and it will only be able to quantify the actual losses closer to the end of the year, depending on its Q4 performance.

The magnitude of losses incurred will depend the continuing impact of Covid-19 measures on the construction progress of the projects, including the availability of labour, the health of workers and supply chain delays.

On Friday, Sembmarine’s shares fell S$0.001 to end the day at S$0.079 on volume of 57.3m. This is below the mandatory takeover offer price of S$0.08 by Temasek, an offer that closes on 3 Nov.

According to The Business Times, the fall came after a Thursday media report that Sembmarine’s work on the Johan Castberg vessel has been hit by “serious manpower shortages’’ due to the pandemic and the project owner is set to transport the unfinished components from Singapore to Norway.

Raffles Education in the meantime on Thursday disclosed that the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department (CAD) have requested documents relating to a loan extended by Affin Bank to Raffles K12 and Raffles Iskandar in Malaysia.

China’s growth disappoints

China on Monday reported a disappointing 4.9% year-on-year growth in the third quarter. The country’s National Bureau of Statistics said there was a slowdown in the real estate sector’s contribution to the economy.

It was the slowest pace in a year and worse than analysts had predicted. It was also far slower from the previous quarter when growth was almost 8%, suggesting the recovery is weakening. Power shortages, outbreaks of Covid-19 and pressure from Beijing on a number of industries are taking their toll.

Wall St continued to thrive with focus on earnings

Over in the US, stocks displayed strength thanks mainly to better-than-expected corporate earnings and despite the 10-year Treasury yield climbing to 1.7% on Thursday.

Investor concerns on familiar themes such as inflation, supply-chain disruptions, and central bank stimulus seemed to dissipate throughout the week.

The aggregate third-quarter earnings result for S&P 500 companies has beaten analyst estimates by about 14%, according to Credit Suisse. Banks have beaten estimates by the widest margin, bringing the overall earnings beat drastically higher. Still, companies across the board are clearing profit expectations.