SINGAPORE – After a volatile week when financial markets were buffeted by the crosswinds of inflation fears and hopes of a post-pandemic recovery, equity markets generally ended on a positive note.
This was despite the fact that the core personal consumption expenditures index, a key inflation indicator that the United States Federal Reserve uses to set policy, rose to 3.4 per cent last month – its highest level since April 1992.
Nevertheless, the Federal Reserve appears to be sticking to its guns, calling the May consumer price spikes a “base effect”, where they are exaggerated when compared with the deflationary forces of May last year.
The markets seemed to accept this, and the Wall Street indexes ended the week on a positive note last Friday.
The Dow Jones surged some 3.4 per cent for the week to close at 34,433.84 points.
The broader S&P gained 2.7 per cent for the week to end at a record 4280.77 points, while the tech-heavy Nasdaq was up 2.3 per cent to 14,360.39 points.
In Singapore, the Straits Times Index had a rocky ride as banks and blue chips came under selling pressure. The benchmark index ended the week flattish, giving up 22 points to 3,121.6 points.
There was more selective stock picking across the local bourse, with investors and market players increasingly focusing on news-driven, situational and recovery plays.
Tuan Sing Holdings, which will see a huge balance sheet fillip from the expected listing of its China printed circuit board associate, rose 20 per cent during the week. Analysts see more upside.
Singapore Exchange data shows that the top performers of the FTSE ST All-Share Index during the April-to-June quarter were iFast Corp, Hong Leong Asia, Delfi, First Reit, Sunpower Group, Sembcorp Industries, Singapore Press Holdings, ECWorld Reit and Frencken Group. These stocks averaged 21 per cent total returns as they attracted some $220 million in net institutional and proprietary funds.
But the big news of the week was the possible merger of the two offshore and marine (O&M) players.
Following the announcement of talks on such a deal, Sembcorp Marine fell 27.2 per cent to 13.9 cents, ending below its previous low of 14 cents on Feb 1. Its shares will see a greater impact due to the fully underwritten $1.5 billion renounceable rights issue, translating into rights shares at eight cents per share. Though this will help refinance the new entity to the end of next year, it does bring in a dilution impact.
Keppel Corp gained 5.7 per cent to $5.34 as the company is seen as hiving off a tough business.
Sembcorp Marine’s share price will likely remain under pressure for a while, until a merger is completed and the company emerges as a rejuvenated global O&M and energy player, scooping up projects around the world.
Going forward, expect more volatility in the markets, said OCBC Bank’s executive director of investment strategy Vasu Menon. “While the macro environment is favourable for riskier assets such as equities, the prospects for slower economic and earnings growth mean that investors must be prepared for more volatility once the economic and policy tailwinds abate in the coming months.”
In short, the easy money has already been made.
The US jobs report on Friday will be a critical data point. Consensus forecast from Bloomberg shows payrolls rising to 695,000 this month versus 559,000 jobs in May.
The US Institute for Supply Management manufacturing purchasing managers’ index (PMI) for June, due on Thursday, will also be closely watched by markets for signs of whether US growth momentum is peaking.
Elsewhere, Chinese PMIs will be released on Wednesday and Thursday, and markets will keep a close eye for signs that China’s economy is losing further momentum. The Chinese economy hit a soft patch in the second quarter after a V-shaped 18 per cent growth rebound in the first quarter. Credit-tightening and reduced monetary policy support have weighed on the nation’s recovery recently.
