DAILY MORNING NOTE | 14 September 2022
The Straits Times Index (STI) rose 0.5 per cent or 15.36 points to close at 3,290.08 points on Tuesday (Sep 13), tracking gains on Wall Street overnight as US equities extended the bear market bounce for the fourth day. In the wider Singapore market, gainers edged out losers 257 to 244, with 1.24 billion shares worth S$926.9 million traded. Performance was mixed across key Asian markets, amid uncertainty ahead of the release of Consumer Price Index (CPI) data in the US. South Korea’s Kospi Composite Index jumped 2.7 per cent, Japan’s Nikkei 225 index rose 0.3 per cent and Australia’s S&P/ASX 200 index gained 0.7 per cent, while Hong Kong’s Hang Seng Index dropped 0.2 per cent and the FTSE Bursa Malaysia KLCI fell 0.7 per cent. CapitaLand Investment (CLI) was the top performer among the STI constituents on Tuesday, gaining 2.7 per cent or S$0.10 to S$3.75. At the bottom of the table for the blue-chip stocks was Mapletree Industrial Trust, which shed 1.1 per cent or S$0.03 to close at S$2.60. Genting Singapore was the most actively traded counter on the index, with 27.7 million shares changing hands. The counter ended up 1.9 per cent or S$0.015 to S$0.79. The trio of local lenders also closed higher. DBS rose 0.4 per cent or S$0.14 to S$33.63, OCBC climbed 0.7 per cent or S$0.08 to S$12.27 and UOB gained 0.5 per cent or S$0.14 to S$27.56.
WALL Street equities took a beating on Tuesday following disappointing US inflation data, ending the day with steep losses in the worst trading day in weeks. The benchmark Dow Jones Industrial Average plunged nearly 1,300 points, a 3.9 per cent loss to finish the session at 31,104.97. The broad-based S&P 500 dropped 4.3 per cent to 3,932.69, while the tech-rich Nasdaq Composite Index collapsed 5.2 per cent to 11,633.57. Investors had been clinging to hopes that slowing price increases would allow the Federal Reserve to eventually pull back on its tough anti-inflation fight, but the data extinguished those hopes for now. While the annual increase in the consumer price index (CPI) slowed slightly in August to 8.3 per cent, inflation actually rose 0.1 per cent compared to July, the Labor Department said, a disappointing result amid widespread expectations that CPI would fall in the month. More concerning, the report showed that excluding volatile food and energy prices, “core” CPI accelerated sharply in August, and rose 6.3 per cent over the past 12 months, after the 5.9 per cent pace seen in July and June. Despite the welcome relief from falling petrol prices, food, housing and medical care costs continue to rise. Economists say the data confirm the Fed will announce a third consecutive three-quarter point hike. That prompted the worst point loss for the Nasdaq since May 5.
The trustee of Parkway Life Reit has entered an agreement to acquire 3 nursing homes in Hokkaido for a sum of 2.56 billion yen (S$26.1 million), in a move to further expand the healthcare Reit’s Japan portfolio. The 3 properties – Blue Terrace Kagura, Blue Rise Nopporo and Blue Terrace Taisetsu – are being sold by Blue Melon Capital Kabushiki Kaisha and its wholly-owned subsidiary, K2 Healthcare Sapporo Godo Kaisha. These facilities are operated by Blue Care Kabushiki Kaisha, a wholly-owned subsidiary of Living Platform, one of PLife Reit’s existing nursing home operators in Japan. The acquisition will be made at 12.2 per cent below valuation and is expected to generate an average net property yield of 6.5 per cent, PLife Reit announced in a Tuesday (Sept 13) bourse filing. The deal is expected to be completed by Q3 this year and will bring the Reit’s Japan portfolio to 55 properties, totalling S$725.33 million in value. It will be fully funded by Japanese yen debts, which the Reit described as a “natural hedge”. PLife Reit will take over the existing lease agreements of the properties, which have 19 years left on their leases. This will improve PLife Reit’s weighted average lease expiry, by gross revenue, from 17.01 years to 17.05 years. Post-acquisition, PLife Reit’s leverage ratio will rise from 32.5 per cent as at end-June to 33.4 per cent.
An investment vehicle owned by the top executives at the Singapore Medical Group (SMG) has launched an offer to take the company private at S$0.37 per share in cash or 1 new share in the offeror. Called TLW Success, the vehicle is equally-owned by SMG’s non-executive chairman Tony Tan Choon Keat, CEO Beng Teck Liang and executive director Wong Seng Weng, the company announced in a Tuesday (Sept 13) filing. The S$0.37 cash price represents a premium of 18 per cent over SMG’s volume-weighted average price in the past 12 months. It is also 8.1 per cent above the company’s net asset value per share as at end-2021. To date, TLW has received irrevocable undertakings from shareholders, including the 3 executives behind the offer, holding 51.67 per cent of the company to accept the share alternative of the offer. The offer is conditional upon the TLW and its concert parties holding more than 90 per cent of the company at the offer’s close. TLW intends to make SMG its wholly-owned subsidiary and does not plan to retain its listing status. The move comes as SMG faces headwinds including operational cost increases, a shortage of skilled healthcare labour and wage increases in the midst of an inflationary environment, the company noted in its announcement. The privatisation will provide SMG with greater flexibility to execute long-term investments and enhance shareholder value in the long run, said CEO Beng in a press release.
An entity under Keppel Offshore and Marine (Keppel O&M) on Monday (Sep 12) applied for an injunction from the Singapore court to prohibit payment on a US$126.6 million standby letter of credit, amid a customer claim involving a rig contract. Back in Feb 2019, Keppel disclosed that there were customer potential claims arising from disputes over the validity of certain foreign exchange fluctuations and cost escalation contractual formulas in a rig contract entered by the Keppel O&M entity. The entity, which is 75 per cent-owned by Keppel O&M, had provided the standby letter of credit in favour of the customer, for the purpose of repayment of the amounts received by the entity. The sums were calculated based on the contractual formula. However, a “relevant” government authority decided that the contractual formulas were invalid, following which the customer on Monday sought to call on the standby letter of credit, Keppel said in a Tuesday bourse filing. Keppel considers that the decision is still subject to possible modification and the call was “premature”. Besides obtaining the injunction, the Keppel O&M entity has also filed legal proceedings in the local court to challenge the decision of the relevant authority. Keppel has previously made a provision in its accounts for the full amount payable under the standby letter of credit, and considers that no further provision is required. It therefore does not consider there to be any material impact on its overall financial performance.
US inflation was firmer than expected in August, likely keeping the Federal Reserve on track for a third-straight 75 basis-point interest-rate hike. The consumer price index increased 0.1 per cent from July, after no change in the prior month, Labor Department data showed on Tuesday (Sep 13). From a year earlier, prices climbed 8.3 per cent, a slight deceleration. So-called core CPI, which strips out the more volatile food and energy components, advanced 0.6 per cent from July and 6.3 per cent from a year ago. All measures came in above forecasts. Shelter, food, and medical care were among the largest contributors to price growth. The acceleration in inflation points to a stubbornly high cost of living for Americans, despite some relief at the gas pump. Price pressures are still historically elevated and widespread, pointing to a long road ahead toward the Fed’s inflation target. Chair Jerome Powell said last week that the central bank will act “forthrightly” to achieve price stability, and some policy makers voiced support for another historically large rate hike. Officials have said their decision next week will be based on the “totality” of the economic data they have on hand, which also illustrates a strong labour market and weakening consumer spending.
Oil prices ended nearly 1 per cent lower on Tuesday, reversing earlier gains as US consumer prices unexpectedly rose in August, giving cover for the US Federal Reserve to deliver another hefty interest rate increase next week. Brent crude for November delivery settled 83 cents lower at US$93.17 a barrel with a 0.9 per cent loss, after trading between US$95.53 and US$91.05. US October crude futures closed down 47 cents, or 0.5 per cent, at US$87.31, after touching a high of US$89.31 and low of US$85.06. The consumer price index gained 0.1 per cent last month after being unchanged in July, the US Labor Department said. Economists polled by Reuters had forecast a 0.1 per cent fall. Fed officials are set to meet next Tuesday and Wednesday, with inflation way above the US central bank’s 2 per cent target. “The Fed may have to raise rates quicker than expected which could cause a ‘risk back off’ sentiment in crude and further strength to the dollar,” said Dennis Kissler, senior vice president of trading at BOK Financial. Oil is generally priced in US dollars, so a stronger greenback makes the commodity more expensive to holders of other currencies.
The US poverty rate climbed for a second straight year in 2021 and household income slipped slightly as the economy slowly started a recovery from the Covid-19 pandemic. The poverty rate rose to 11.6 per cent from 11.5 per cent in the prior year, annual data released on Tuesday (Sep 13) by the US Census Bureau showed. It reached the lowest in 6 decades in 2019. Last year, 37.9 million people were in poverty, about 3.9 million more than in 2019. The US poverty rate has been roughly cut in half over the past 60 years. Median, inflation-adjusted household income decreased last year to US$70,784. It has declined about US$2,000 over the last 2 years but has risen by about US$20,000 since 1967.The data help flesh out the picture of American families’ economic health in the first full year of President Joe Biden’s term after the turbulence of 2020, when the pandemic was declared a national emergency. In 2021, the annual jobless rate fell to 5.3 per cent after surging to 8.1 per cent in 2020, a 9-year high. In 2019, the rate was roughly where it is today at 3.7 per cent. In March last year, Biden signed the American Rescue Plan, a US$1.8 trillion pandemic-relief package that provided US$1,400 cheques for millions of people – at a US$410 billion cost – and extended unemployment benefits for those out of work. That followed the 2 major packages in 2020 totalling almost US$3 trillion under President Donald Trump. There was a clear divergence between the wealthy and the poor: Median incomes at the 90th percentile rose to US$211,956 in 2021, while incomes for those among the bottom 10th fell to US$15,660. In 2020, the income-percentile limit for the lowest 10th was US$16,400. The so-called Gini index, a measure of income inequality, rose to 0.494, indicating the widest disparity on record.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
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