Date: August 1, 2018
- STI rose 1.6% as US trade war with China featured prominently;
- Singapore government shocked the market with fresh property cooling measures;
- US trade deal with EU helped calm some nerves after Trump accused EU and China of manipulating currencies and interest rates;
- Trump criticized Fed for its interest rate policy;
- US 10-year Treasury came close to the 3% mark – again;
- Facebook and Twitter plunged after reporting disappointing figures;
- Privatization offer for Wheelock Properties sparks interest in property stocks;
- Koufu, DLF and Silkroad Nickel made their debuts on SGX.
IN SINGAPORE
Banks in play
The Straits Times Index gained 51 points or 1.6% over the month of July in relatively subdued trading. In keeping with a pattern that has been well established over the past few years, most of the index’s movements were driven by the three banks, followed by the Jardine group and property stocks.
The push on banks came ahead of their reporting season, which starts with DBS on 2 August. Morgan Stanley in its preview of the banks’ earnings on 25 July said their return-on-equity will continue to increase even as macro risks rise. It also noted that the banks were trading one-standard deviation below their long-term average price-earnings after underperforming MSCI Asean Index and Asian peers since May.
Daiwa in its 18 July Singapore Banks report reiterated its “Positive’’ sector stance, led by sustainable earnings per share growth of at least 12% for all banks, undemanding valuations and good dividend yields.
Property measures and Wheelock
Turnover rarely threatened the S$1.5 billion mark – the lowest daily total was the S$827 million done on 2 July, and the highest was S$2 billion traded on 6 July, the day after the government announced a new round of property cooling measures. Not surprisingly, all property stocks that day took large hits – newly-listed PropNex crashed 24.6%, City Developments lost 15.6% and CapitaLand 6%.
On that day, the STI suffered its worst one-day loss for the month when it fell almost 65 points or 2% to 3,191.82. Its largest gain on the other hand, came on 19 July when it added 37 points at 3,277 after Wheelock’s Hong Kong parent tabled an offer of S$2.10 per share to take the company private.
That news sent the stock shooting up 25% to S$2.18 and it eventually ended the month at S$2.19. Analysts said the market is clearly betting on the offer being raised. Whatever the case, there were spillover benefits on the rest of the property sector, helping it stabilize after the earlier selloff.
Koufu, DLF and Silkroad Nickel
Foodcourt operator Koufu listed on the mainboard on 18 July and engineering firm DLF on Catalist on 25 July. Koufu’s shares were offered at S$0.63 each, whilst DLF’s were priced at S$0.23. They ended the month at S$0.685 and S$0.177 respectively.
Silkroad Nickel was listed via a reverse takeover of suspended cash company China Bearing (Singapore) by Singapore-incorporated Far East Mining’s wholly-owned subsidiary FE Resources. It debuted on 30 July and closed at S$0.345 versus its last-traded price of S$0.26 in 2015 before its suspension.
OVER IN THE US
Trade
US-China and US-European Union trade talks and negotiations provided most of the external backdrop. The month started with the US announcing on 6 July a 25% levy on US$34 billion worth of China imports, with China retaliating by imposing duties on a variety of US products such as soybeans and automobiles.
Wall Street however, did not flinch – instead, it reacted to a positive June jobs report that showed 213,000 new jobs created versus the 195,000 that had been forecast. Analysts were left wondering at how stocks were able to ignore the threat posed to global growth by a trade war.
Help in easing the trade-related tension came on 12th July when US Treasury Secretary Steve Mnuchin told the House Financial Services Committee that he was available for negotiations.
US Treasuries
On 23 July, the 10-year Treasury jumped almost 11 basis points to 2.96%, reportedly in tandem with movements in Japanese bonds that came in anticipation of the Bank of Japan tweaking its monetary policy. Although the yield backed away from the 3% mark and closed the month at 2.962%, the 2-yr yield’s rise to almost 2.7% has once again raised worries of a yield curve inversion, traditionally seen as a precursor to a recession.
Trump’s complaints
US President Donald Trump on 20 July accused China and the European Union of manipulating their currencies and interest rates, raising concerns of a currency war.
Later in the month, he also said he was unhappy with the US Federal Reserve for raising interest rates, raising questions over the Fed’s independence.
Facebook and Twitter
The two social media giants Facebook and Twitter suffered from large selloffs after they reported disappointing earnings. On 26 July, pressure on Facebook wiped off US$120 billion of its market value, the first time in history that any single stock’s loss had surpassed US$100 billion.
The following day, Twitter also took a large hit on news that the number of active monthly users fell from 336 million to 335 million over the past three months. The stock plunged 20.5% in response.
THE OUTLOOK
Schroders in its July Talking Point “An economic slowdown is approaching, but that’s no cause for investor alarm’’ said equity markets are typically quite effective at anticipating the ups and downs of the underlying economy whilst violent market swings are caused by unexpected moves in activity often brought about by bad policy decisions or unidentified bubbles in the system.
“Investors shouldn’t be alarmed that the cycle is maturing. It’s nearly ten years since the financial crisis and global growth has been resilient for a number of years. The natural course of events is to expect a slowdown because economies can’t grow in perpetuity.
Our belief is that the next slowdown will be shallow in amplitude, which is typical following a severe recession like we saw in 2009’’ said Schroders.
