US FOMC and tech selloff were main drivers

Date: September 21, 2020

  • The STI added 7 points or 0.28% at 2,497.71;
  • Main external drivers were US FOMC and technology selloff;
  • WTO ruled that US’s tariffs on China are illegal;
  • US to ban WeChat and TikTok from app stores;
  • Wilmar’s China unit secured go-ahead to list on Shenzhen Exchange;
  • Top Glove reported that 4Q net profit was 17 times higher than FY19;
  • SIA pilots agree to deeper pay cuts;
  • Analysts divided over outlook for Wall St.


US FOMC and tech selloff were main features

The US Federal Reserve’s latest Federal Open Markets Committee (FOMC) meeting and continued pressure on US tech stocks provided the main external direction for the local stock market last week.

Investors were clearly unsure of what to make of both – the Fed said it would keep US interest rates near zero until inflation is on track to overshoot its 2% target but its projections were a drag on Wall Street, whilst perhaps not surprisingly, the tech sector which has led the US market to all-time highs a few weeks ago, underwent a volatile week.

The upshot of this was a 7 points or 0.28% rise in the Straits Times Index to 2,497.71. Of particular note was that volume spiked up to 1.74b units worth S$1.89b on Friday, almost double the daily average of the previous few sessions. Contributing to this was heavy trading in the likes of Wilmar International and Singtel.

WTO ruled that US tariffs on China are illegal

Earlier in the week, the World Trade Organisation ruled that the US’s tariffs on China were illegal, a ruling that drew swift condemnation from the US administration.

The US argued that its tariffs on US$200 billion worth of imports was allowed under an exception for enforcing public morals. This exception is typically cited to block imports like violent media, pornography, or gambling materials. The US said that China’s technology transfer policies violated American public morals.

On Friday, the US announced it will ban WeChat and video sharing app TikTok from US app stores because of national security concerns.

Wilmar in play after China unit’s IPO nod

Stocks of agribusiness firm Wilmar International enjoyed heavy play last week after its said its Chinese unit has received the final approval from the China Securities Regulatory Commission for an initial public offering (IPO).

The listing of Yihai Kerry Arawana on the Shenzhen Stock Exchange’s ChiNext Board is expected to take place by mid-October. Wilmar has been in focus for several weeks now because of the IPO plans for its unit and has appeared on the “buy’’ lists of brokers. Wilmar rose S$0.02 to S$4.37 on volume of 15.7m on Friday.

Top Glove’s 4Q profit rose 17 times year-on-year

Another stock in focus in recent months was Malaysian glove maker Top Glove, which reported a net profit of RM1.29b for its fourth quarter ended August. This was more than 17 times higher than the RM74m it reported for the same period last year.

Top Glove’s FY20 net profit was RM1.87b, about 5 times more than the RM365m in FY19. The company is proposing a final dividend of 8.5 sen per share and said it is looking to list in Hong Kong in 6-9 months. Its shares closed S$0.01 higher on Friday at S$2.64 on volume of 10.1m.

SIA pilots agree to deeper pay cuts

Singapore Airlines on Friday announced that it has reached agreement with the pilot’s union on pay cuts. First Officers will take a basic salary cut of 15-18.5% compared to 13% previously, whilst Captains will take a basic salary cut of 25-28.5%, up from 23% now. Re-employed Captains will now see a 60% reduction, up from 50%. There will be no change to the cuts for Second Officers.

Aside from basic salary cuts, pilots are also seeing a loss in their productivity allowance which is linked to flying and accounts for about 40% of their overall salary package. The Business Times on Saturday reported that 59 pilots on employment passes were let go. SIA’s shares ended S$0.03 weaker on Friday at S$3.50 with 6.2m traded.

The outlook – at least for Wall Street

On Friday, the Dow Jones Industrial Average fell 244.56 points, or 0.9%, to 27,657.42, while the S&P 500 fell 37.54 points, or 1.1%, to 3,319.47. The Nasdaq Composite declined 116.99 points, or 1.1%, at 10,793.28, to close out the week 0.6% lower. Tech was the worst-performing sector in the S&P 500, down 2.5% for the day and 1% for the week. The sector’s losses decelerated from its 4.4% slide during the week ended Sept. 11.

US analysts appear divided over the outlook for Wall Street. Financial newspaper Barron’s on Friday reported that Goldman Sachs’ strategists said they see the latest correction “more as a position adjustment than a broader fundamental shift’’, adding that “The global growth recovery, while flattening out in places, has also been broadening… so our central case is that equity markets will revisit the September high over the next couple of months.”

However, the newspaper also reported that strategists at Barclays in a 17 Sep note said the US stock market is “priced for perfection,” and that large-cap stocks’ current valuations may already reflect the best possible outcomes for a Covid-19 vaccine and the outcome of the presidential election.