Daily Morning Note – 20 October 2021
Asian stocks are set to track a U.S. rally as a focus on corporate earnings helps to ease some of the concerns over inflationary pressures in the global economy. A gauge of the dollar held a retreat.
Futures advanced in Japan and Hong Kong. Australian shares edged up at the open, while U.S. contracts were steady. The S&P 500 is close to a record as traders digest company reports to assess the impact of supply-chain snarls and higher commodity prices. Johnson & Johnson raised a profit forecast, Netflix Inc. subscribers jumped and Procter & Gamble Co. faced rising raw material and freight costs.
The 10-year U.S. Treasury yield pushed above 1.6% and the yield curve steepened. The dollar held losses amid bets that other central banks will boost interest rates before the Federal Reserve. The offshore yuan was steady after jumping.
Bitcoin is close to scaling the peak it reached in April. The first Bitcoin-linked exchange-traded fund listed in the U.S. debuted as the second-most heavily traded fund on record in a watershed moment for the cryptocurrency industry.
A regulatory filing by tycoon Oei Hong Leong on Tuesday (Oct 19) revealed that he had sold S$2.7 million worth of Raffles Education shares the day before (Oct 18), paring his stake in the company from 10.16 per cent to 7.34 per cent. Oei, as a substantial shareholder, had disposed of some 38.9 million shares, translating to an average price of S$0.069 per share. A total of 52.3 million shares had been traded on Monday. His disclosure follows a report in The Straits Times on Monday that the market had got hold of a letter by him to the company’s board. The letter is said to have asked why the company’s chief executive and founder Chew Hua Seng had caused the company to hire all “adult members of his family at high salaries”. On Monday, Raffles Education’s share price sank 26 per cent to close at S$0.061. The company subsequently called a trading halt on Tuesday morning.
Ascendas real estate investment trust (Reit) posted a positive rental reversion of 3.7 per cent for lease renewals in Q3 ended September, down from 8.9 per cent in Q2, it announced in a quarterly business update on Tuesday. It expects rental reversion for FY2021 to be in the “positive low-single-digit range”, given market uncertainties. In the year to date, rental reversion stands at 5.4 per cent. The Reit manager is cautious about leasing sentiment in Singapore and the US, even though the global outlook for this year is brighter than last year. Its portfolio occupancy rose slightly to 91.7 per cent at the end of Q3, compared with 91.3 as at end-June. Overall weighted average lease expiry (WALE) stands at 3.8 years.
Sembcorp Marine (Sembmarine) expects to post “significant losses” in H2 ending Dec 31, 2021, potentially in the range of the S$647 million loss in the first six months of the year, the company announced in a bourse filing on Tuesday (Oct 19). This is mainly due to the increased costs to complete its projects, as well as the losses arising from the added delays. Even though Sembmarine has made some headway in managing project completion delays, the pandemic continues to impact performance. Key challenges are delays in the delivery of equipment arising from border controls in some countries; purchase of new components requiring a longer lead time due to supply chain constraints; and slower than expected recruitment of additional skilled labour. Sembmarine has also been hit by the continuing attrition of skilled workers and work disruptions, including stop work orders, due to measures to contain the pandemic.
DBS and OCBC on Tuesday separately announced strategic bank partnerships in China under the country’s new Wealth-Management Connect scheme, to grow their franchises in the Greater Bay Area (GBA). This comes as the Chinese and Hong Kong regulators had in September announced the roll-out of a cross-boundary scheme to allow two-way purchase of approved wealth-management products across China’s GBA. Under the scheme, residents in the 9 mainland China cities in the GBA, such as Guangzhou, Shenzhen and Zhuhai, can purchase wealth-management products offered by providers in Hong Kong and Macau (south-bound scheme), while those in Hong Kong and Macau can buy products by providers based in mainland China cities (north-bound scheme).
The International Monetary Fund on Tuesday slashed this year’s economic growth forecast for Asia and warned that a fresh wave of Covid-19 infections, supply chain disruptions and inflation pressures pose downside risks to the outlook. China’s economy will grow by 8.0 per cent this year and 5.6 per cent in 2022, but the recovery remains “unbalanced” as repeated coronavirus outbreaks and fiscal tightening weigh on consumption, it said. Any “untimely policy normalisation or misconstrued policy communications” by the US Federal Reserve could also trigger significant capital outflow and higher borrowing costs for Asian emerging economies, the IMF said.
The US Centres for Disease Control and Prevention (CDC) has added Singapore to its list of “very high” risk travel destinations. Under its Travel Notices, the CDC raised Singapore to Level 4, its highest risk category, from Level 3 previously. The notice cited “Level 4: Very High Level of Covid-19 in Singapore”. The notice asked US residents to “Avoid travel to Singapore”.”If you must travel to Singapore, make sure you are fully vaccinated before travel.”Because of the current situation in Singapore, even fully vaccinated travelers may be at risk for getting and spreading Cocid-19 variants,” the CDC said.
Oil futures rose on Tuesday and were near multi-year highs as an energy supply crunch continued across the globe, while falling temperatures in China revived concerns over whether the world’s biggest energy consumer can meet domestic heating needs. The Brent crude benchmark rose 75 cents to settle at US$85.08 a barrel. US West Texas Intermediate (WTI) futures rose 52 cents to settle at US$82.96 a barrel. Prices have been climbing the last two months. Since the start of September, Brent has risen by about 19 per cent, while WTI has gained around 21 per cent.
The US dollar retreated on Tuesday (Oct 19) to a 3-week low, hit by a proliferation in rate-hike bets in other markets, while the yuan surged to its highest in 4 months, benefiting from greenback weakness and a slight easing in property market concerns. A robust start to the US earnings season and hopes that China will be able to contain its property market malaise boosted global stock markets, lifting currencies such as the Australian and New Zealand dollars and the Norwegian crown that benefit when risk sentiment and commodity prices are high. The dollar index, which measures the greenback against six peers, sank as low as 93.501 for the first time since Sep 28, before inching up to 93.565, 0.35 per cent down on the day. A week ago, the dollar index reached a one-year high of 94.563, benefiting from stagflation fears as well as bets the Federal Reserve would begin tapering its monetary stimulus next month, followed by interest rate increases next year.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
iX Biopharma Ltd – Multiple share price catalyst
Recommendation: BUY (Maintained); TP: S$0.335
Last Done: S$0.235; Analyst: Paul Chew
– Outlicensing of Wafermine for Phase 3 trials is a major share price catalyst for the company to enter the estimated US$19bn global opioid industry.
– Plans for a Hong Kong IPO could trigger a price discovery of at least a HK$1.5bn (S$260mn) market valuation for the pharmaceutical business.
– Our earnings forecast cut to a net loss in FY22e due to delay in new capacity. Our BUY recommendation is maintained. Our DCF (WACC 10%) TP is lowered to S$0.335 from S$0.445 following our earnings downgrade and rights issue.
Technical Pulse: Hong Kong Exchange & Clearing Ltd
Recommended: Technical BUY; Analyst: Chua Wei Ren
HKEX (HKEX: 388) symmetrical triangle/pennant has been ranging since the strong sell-off in March. Although the first target price has been met based on our report dated 21st April 2021. Further technical have indicate bullish upside.
Buy spot: 482.80 Stop loss: 449.50 Take profit 1: 524.80 Take profit : 563.70
Technical pulse: IShares Hang Seng Tech ETF
Recommended: Techical BUY; Analyst: Chua Wei Ren
Hang Seng Tech ETF (HKEX: 3067) will see a rise to the upside after technicals indicate a potential accumulation signs between August and October period
Buy spot: 13.59 Stop loss: 11.80 Take profit 1: 15.70 Take profit : 17.50
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Date: 18 October 2021
Updates summarised in 3 minutes
Phillip Research in 3 minutes: #29 Keppel Corporation; Initiation
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