Date: April 29, 2024
- The STI pushed past 3,200 and almost 3,300 thanks to a strong Wall St
- Second half weakness cut the index’s gain to 3.3% at 3,280.10
- After a Thursday wobble, US stocks closed mostly higher for the week
- However, US inflation looks to be still a problem, the 2-year Treasury yield briefly crossed 5%
- First rate cut now expected only in Sep
- Cordlife’s directors file injunction to stop share placement; shareholders consider legal action against company
- Best World shareholders grill management on pay, lack of dividends at AGM
- The week ahead: All eyes on FOMC and Powell’s statement
A week of two halves
To borrow from a description commonly used to describe football matches, it was a tale of two halves as far as the local stock market was concerned last week.
In the first half, Wall Street’s major indices recovered significant ground partly because bond yields slipped, and partly because prominent companies such as GM, GE Aerospace, PepsiCo, UPS, and Lockheed Martin all beat earnings expectations.
This in turn enabled the Straits Times Index, newly recoupled as it has been these past few weeks to Wall St, to jump a total of 117 points or about 3.7% between Monday and Wednesday, even coming close to breaking above the 3,300 level.
However, weakness set in during the latter half, cutting the STI’s gain to 104 points or about 3.3% at 3,280.10. Average daily turnover amounted to S$1.33b versus S$1.42b the previous week.
Strong US inflation numbers capped Wall’s gains
However, on Thursday US economic growth for the first quarter fell short of forecasts – inflation-adjusted gross domestic product grew at an annualized rate of 1.6% in the first quarter, according to an initial estimate the Bureau of Economic Analysis released, below the 2.2% growth that economists surveyed by FactSet had expected.
More importantly, a measure of core inflation, personal consumption expenditure (PCE) gained 3.7% in the first quarter versus 2% prior—which suggests that inflation is on the rise and may further delay any planned interest rate cuts from the Federal Reserve.
US Treasury yields spiked up, the 2-year yield crossed 5% briefly
This led to a selloff in stocks and bonds, with the 2-year yield hitting an intraday high of 5.018% and the 10-year touching 4.722%, the highest since last November.
Fed-fund futures now show only a 26% chance that the central bank will trim interest rates in July, rising to 44% in September according to the CME FedWatch Tool.
The latest PCE “adds to hawkish risks in next week’s (Federal Open Market Committee) communications and is indicative of the growing potential of there being no rate cut in 2024,” wrote David Doyle, head of economics at Macquarie in an email on Thursday.
Notwithstanding this uncertainty and a Thursday blip, all major US equity indices posted gains – for the week, the S&P 500 gained 2.7%, the tech-heavy Nasdaq Composite climbed +4.2%, and the blue-chip Dow rose +0.7%.
Cordlife’s directors file injunction to stop share placement; shareholders consider legal action against company
A group of Cordlife’s directors has filed an injunction application before the High Court of Singapore to restrain the company from issuing new shares.
Pending hearing this application, an interim injunction was granted by the High Court. The claimants comprise a controlling shareholder Nanjing Xinjiekou Department Store, as well as non-independent non-executive directors Zhai Lingyun and Chen Xiaoling.
The move is aimed at blocking a proposed share placement by the troubled cord-blood bank which had earlier announced its intention to raise S$8.2 million by issuing some 51.2 million new ordinary shares at S$0.16 apiece.
Cordlife said it had entered into two separate subscription agreements with Charming Global Enterprises (CGE) and Darren Ng, a high-net-worth individual based in Singapore. Through respective private placements, CGE would subscribe for 44.5 million of the new shares for S$7.1 million, while Ng would purchase 6.7 million shares for S$1.1 million.
Meanwhile, Cordlife’s customers have banded together to sue the beleaguered cord-blood bank, with at least two legal actions under way.
The Business Times on Wednesday reported that these groups are considering class action-type suits and are seeking legal opinion from various law firms.
Best World shareholders grill management on pay, lack of dividends at AGM
Shareholders at beauty products firm Best World questioned management on the salaries paid to top management and the absence of dividends for the past five years.
According to Best World’s latest annual report, Group Chief Executive Officer Dora Hoan and President Doreen Tan both draw a salary within the band of S$10.8 million to S$11 million while Huang’s salary is within the range of S$6.5 million to S$6.8 million.
Adrian Chan, an independent director and chairman of Best World’s remuneration committee, said that the company relied on advisory consultancy HRGuru to benchmark their salaries in line with industry and market norms.
Kevin Goh, a consultant with HRGuru, said that their pay was based on a profit-sharing scheme, where 17 per cent of the profit goes into their pay. About 30 per cent of listcos in Singapore paid more than 17 per cent, said the consultant.
Best World is proposing to delist via a selective capital reduction at S$2.50 per share. Huang Ban Chin, the executive director and chief operating officer of the company, said that the company has set aside S$375.5 million for the exit offer.
He said that there would not be a dividend payout as the company had to conserve cash. Financial institutions were only willing to finance the delisting deal if they could see that the company was able to pay them back immediately, he said.
“If we actually sign a deal with (the banks), the amount of cash that we see sitting in Singapore, earmarked for this purpose, has to be transferred to their account before the exercise is complete. That’s the harsh reality of it,” said Huang.
Selected earnings in brief
Keppel REIT reported net property income (NPI) of S$48.2 million for the first quarter ended Mar 31, 2024, up 7.2% year-on-year. This was mainly due to higher rentals and contributions from 2 Blue Street in Sydney. This brought property income to S$61.3 million, up 6.3%. Distributable income for the quarter stood flat at S$50.2 million. The manager announced in 2022 that it will distribute a total of S$100 million of anniversary distribution over a five-year period on a semi-annual basis. Including its anniversary distribution, it also remained flat year on year at S$55.2 million due to higher borrowing costs.
OUE REIT posted a 6.9% rise in NPI to S$60.5 million for its first quarter ended Mar 31 and a 9.5% increase in gross revenue to S$74.9 million. The growth in NPI and revenue were mainly driven by higher contributions from Hilton Singapore Orchard – which reopened earlier in 2023 after a rebranding exercise – and the “resilient performance” of Singapore commercial properties. The Reit’s aggregate leverage stood at 38.8% with no refinancing needs until the second half of 2025. Its weighted average cost of debt stood at 4.5 per cent per annum, while the weighted average term of debt was 2.2 years.
Mapletree Pan Asia Commercial Trust’s (MPACT’s)distribution per unit (DPU) for the fourth quarter ended March grew 1.8% year on year to S$0.0229 from S$0.0225 previously. Unitholders can expect to receive the distribution payout on Jun 6 after book closure on May 3. The REIT’s gross revenue grew 2.6% to S$239.2 million, while NPI for the quarter rose 3.2% to S$183.1 million with an NPI margin of 76.6%. MPACT’s manager attributed the improved financial metrics to a strong Singapore performance and stable contributions from the REIT’s asset in Hong Kong, Festival Walk.
First REIT’s DPU fell by 3.2% to S$0.006 for the first quarter ended Mar 31, as compared to S$0.0062 in the corresponding year-ago period. Rental and other income declined 2.7% on the year to S$26.1 million for the quarter, while net property and other income decreased 2.1% to S$25.3 million. “The financial results in Q1 2024 were impacted by a stronger Singapore dollar against the Indonesia rupiah and the Japanese yen,” said the healthcare REIT’s manager. Distributable income was also down 2.2% to S$12.4 million, as a result of both a stronger Singapore dollar and a higher finance cost.
Suntec REIT’s DPU for the first quarter ended March declined 13% year on year to S$0.01511, in the absence of the REIT’s capital distribution that concluded in end-2023. The distribution will be paid out to unitholders on May 30 after the record date on May 6. Distribution for the quarter stood at S$44 million, down 12.5%. DPU for the quarter was 1.8% lower on an operational basis, which would exclude factoring in last year’s capital distribution. Based on this, distributable income from operations would have been 1.1% lower on the year.
The week ahead: FOMC’s statement in focus as no rate cut is expected
The main even this week will be the 1 May US Federal Open Markets Committee (FOMC) meeting. Although the market is overwhelmingly forecasting no rate cut, all eyes will be on the accompany statement for clues as to the Fed’s thinking with regards to when rates might be lowered.
Other than the FOMC meeting, Wall St will be looking at more tech earnings, notably Amazon on Tuesday and Apple on Thursday. Other big releases would be from Pfizer and Coca-Cola.
Reuters news agency quoted Scott Wren, senior global market strategist at Wells Fargo Investment Institute saying that although earnings have “been a positive, but what the market’s more concerned about, I would argue, is inflation and what the Fed’s going to do’’.
