Date: December 18, 2023
- The Fed kept rates unchanged as expected, Dow crossed 37,000 for first time
- Impact here was not great – the STI rose only 6 points over the week or 0.2% to 3,116.31
- Fed signalled three rate cuts next year, one less than markets expected
- Cordlife accepted Ministry of Health’s suspension
- Manulife US REIT unitholders approved manager’s recapitalisation plan
- High Court ruled ASTI’s EGM as invalid; requisitioners failed to unseat Board
- Fed to cut rates in June 2024 onwards: Bank of Singapore
As expected, the Fed kept rates steady
The US Federal Reserve kept interest rates unchanged last week, as had been widely expected. However, even though the US central bank signalled fewer rate cuts next year than the market had expect, Wall Street’s stocks and bonds rallied strongly with the Dow Jones Industrial Average rising above 37,000 for the first time ever.
However, the impact here was muted. The Straits Times Index first lost the 3,100 mark on Monday but managed to regain it on Tuesday. This was a promising start, but it soon fizzled out. By Friday it had recorded only a nett gain of just 6 points or 0.2% for the week, finishing at 3,116.51.
Average daily volume improved to S$1.23b versus S$828m the week before. Most of this came on Friday when S$2.18b was traded, thanks mainly to heavy volume done in the three banks, Singtel and Wilmar International.
The combined dollar value done in these five stocks was S$874m, or 40% of total business done on Friday.
Fewer rate cuts next year
Fed officials see the central bank keeping monetary policy tighter next year than Wall Street had expected. The median forecast in Federal Open Market Committee members’ latest Summary of Economic Projections now calls for the federal-funds rate to end 2024 at 4.6%—implying three quarter-point cuts from the committee’s current target range of 5.25% to 5.50%.
That compared with futures-market pricing before the meeting that pointed to a target rate of around 4.00% to 4.25% at the end of 2024, which would mean four or five quarter-point cuts.
On the plus side and possibly the reason for Wall St’s rally is that further hiking appears to be off the table. Minor changes to the wording of the Fed’s closely watched policy statement signalled the shift and Chair Jerome Powell said officials “believe that our policy rate is likely at or near its peak for this tightening cycle.”
Earlier, the producer price index for November rose less than economists had expected, strengthening the narrative that inflation is declining.
Cordlife accepted Ministry of Health’s suspension
Cordlife Group accepted the Ministry of Health’s (MOH) suspension notice to stop collecting new cord blood and human tissue, among other operations, for a period of six months. It will also not make written representations to MOH on the notice.
The other operations include testing, processing and storage of any new cord blood and human tissues, or providing any new types of tests to patients.
MOH issued the suspension notice on Nov 30 and gave the company 14 days to make representations to MOH in relation to the notice contents.
Citing the uncertainty of the outcome of ongoing investigations as the reason, Cordlife said that it is unable to assess the financial impact on its performance for the financial year ending Dec 31. “In the meantime, shareholders of the company and potential investors should exercise caution when dealing in the shares of the company,” said Cordlife.
Manulife US REIT unitholders approve manager’s recapitalisation plan
Unitholders of Manulife US Real Estate Investment Trust (MUST) last week voted overwhelmingly in favour of the recapitalisation plan proposed by its manager.
Over 97% of the votes present at the extraordinary general meeting (EGM) on Thursday were in favour of each of the three inter-conditional resolutions.
The first resolution was to approve the divestment of the Reit’s Park Place property to the sponsor for US$98.7 million and saw 97.7% or 545.6 million votes in favour.
Meanwhile, 97.6% or 543.9 million votes were for the second resolution, which involved obtaining a six-year unsecured sponsor-lender loan of US$137 million at an effective interest rate of 10% per annum.
Unitholders also approved the third resolution to adopt a disposition mandate, which authorises the disposal of any one or more of the existing properties. Some 98.1% or 701.3 million votes were for this resolution.
Last month, the manager of MUST unveiled the recapitalisation plan involving asset sales and taking a sponsor loan to remedy its financial covenant breach.
MUST breached existing financial covenants in July after portfolio valuations fell 14.6 per cent, affecting its ability to pay out distributions.
The recapitalisation plan sought to “revitalise” the Reit, and provide more time for the manager to sell assets and realise value.
As part of the plan, the lenders have agreed to waive past and existing breaches, and have provided a temporary relaxation of financial covenants until December 2025.
High Court ruled ASTI’s EGM as invalid; requisitioners failed to unseat Board
THE Singapore High Court last week deemed the extraordinary general meeting (EGM) called on Aug 22 by Asti Holdings’ dissenting shareholders to be invalid. It also dismissed an application filed by the requisitioning shareholders against the company and its incumbent board members to comply with resolutions approved at the said EGM.
In its judgment, the Court declared that the resolutions passed at the Aug 22 EGM were invalid and did not hold any legal effect. Although notice for the EGM was validly served, the court said the meeting was not properly conducted.
The Court said that Section 177 of the Companies Act did not give the requisitioners the power to conduct the meeting, as such powers depended on the company’s constitution.
Instead, Article 76 in the constitution gave incumbent directors the right to attend the meeting and be heard. However, the requisitioners had informed the incumbent directors that they were barred from attending the EGM, failing to give due regard to Article 76.
Fed to cut rates in June 2024 onwards: Bank of Singapore
In a strategy outlook last week in Business Times, Bank of Singapore’s chief investment officer Jean Chia said she is forecasting a mild US recession and core inflation falling below 3 per cent next year. “We think the Fed will cut rates each quarter from June 2024 – with cuts of 25 basis points each in June, September and December – to avoid a further slowdown’’ said Ms Chia.
“Apart from this mild recession scenario – to which we ascribe a 50 per cent chance – we factor in a 30 per cent probability of a “soft landing” scenario, where a US recession is averted but growth continues to weaken and core inflation eases below 3 per cent. The Fed’s rate cuts may be less pronounced and delayed in this case’’.
She added that BOS has upgraded its overall risk stance in its tactical asset allocation from “underweight” to “modestly overweight” this month.
“In fixed income, we upgraded our underweight position in developed market high-yield bonds to neutral, and favour duration – the long end of the curve (eight to 15 years). In equities, we move from underweight to a modest overweight, with a shift in allocation to European equities from underweight to neutral. We remain neutral on US and Asia ex-Japan stocks and continue to favour Japanese equities’’.
