Daily Morning Note – 21 February 2022

Singapore shares closed lower on Friday (Feb 18), amid mixed trading in regional markets as investors continued to keep an eye on geopolitical tensions in Ukraine. The Straits Times Index (STI) fell 0.4 per cent or 12.67 points to close at 3,428.90. The market barometer was little changed over the week, down just 0.05 points. Across the broader market, gainers outnumbered losers 259 to 226 after 1.3 billion securities worth S$1.2 billion changed hands.

The ongoing standoff between Russia and Ukraine as well solidifying expectations of a Federal Reserve rate increase next month, sent US stock indices closing lower on Friday. Wall Street also is bracing for the Federal Reserve to launch a series of increases in the benchmark lending rate. The benchmark Dow Jones Industrial Average ended 0.7 per cent lower at 34,079.18, and the broad-based S&P 500 also fell 0.7 per cent to 4,348.87. The tech-rich Nasdaq Composite Index lost 1.2 per cent to end at 13,548.07.

SG

A further round of monetary policy tightening remains on the cards this April despite the Singapore government’s decision to delay the Goods and Services Tax (GST) hike until next year, according to economists. Barclays regional economist Brian Tan said the Monetary Authority of Singapore (MAS) would likely need to tighten monetary policy “more aggressively to contain demand-pull inflation pressures – especially as the government announced measures that would further boost wage pressures over the next few years”. Finance Minister Lawrence Wong on Friday (Feb 18) announced the government’s plans to further tighten foreign labour supply alongside the rollout of the Progressive Wage Model for more sectors – retail, food services and waste management – over the next two years. Meanwhile, the GST hike, up from the current 7 per cent rate, will happen in 2 steps: to 8 per cent in 2023, then to 9 per cent in 2024.

Beleaguered liftboat operator Ezion Holdings is going into liquidation, the company announced late on Friday (Feb 18). Its winding up application, which was filed last month, has been granted by the High Court. RSM Corporate Advisory’s Ng Kian Kiat and Goh Wee Teck were appointed as joint and several liquidators. The company had previously stated it faced difficulties procuring investment and was unable to proceed with its restructuring and recapitalisation plans.

Tee International on Friday (Feb 18) said it received an order on Feb 17 to produce various documents to the Commercial Affairs Department (CAD) to assist with an investigation regarding an offence under the Securities and Futures Act (SFA). The new development comes just 1 day after the Singapore Exchange said it reported the mainboard-listed engineering group to relevant authorities for potential offences under the SFA. The bourse operator is also investigating the company for potential listing rule breaches. All of Tee International’s independent directors, its non-executive director and the managing director of its engineering and construction business were also asked to assist with CAD’s investigations, the company said in a bourse filing. They have been interviewed by the CAD on Feb 17 and Feb 18.

US

E-commerce sites operated by China’s Tencent and Alibaba Group were included on the US government’s latest “notorious markets” list of entities that allegedly sell or facilitate the sale of counterfeit goods, the US Trade Representative’s (USTR) office said on Thursday (Feb 17). The list identifies 42 online markets and 35 physical markets that are reported to engage in or facilitate substantial trademark counterfeiting or copyright piracy. “This includes identifying for the first time AliExpress and the WeChat e-commerce ecosystem, 2 significant China-based online markets that reportedly facilitate substantial trademark counterfeiting,” the USTR office said in a statement. China-based online markets Baidu Wangpan, DHGate, Pinduoduo and Taobao also continue to be part of the list, along with 9 physical markets located within China “that are known for the manufacture, distribution, and sale of counterfeit goods”, the USTR office said. The list highlights online and physical markets that reportedly engage in or facilitate substantial trademark counterfeiting or copyright piracy.

Major natural gas exporting nations on Sunday began meetings in Doha to discuss how to meet skyrocketing world demand as tensions surrounding Ukraine stoke fears in Europe about gas supplies from Russia. Experts from the 11-member Gas Exporting Countries Forum (GECF) started meetings in the Qatari capital, ahead of ministerial level talks on Monday and heads of state and government on Tuesday. Member states include Russia, Qatar, Iran, Libya, Algeria and Nigeria – who together account for more than 70 per cent of proven gas reserves – and the meetings opened as Ukraine complained of “new provocative shelling” on the frontline between its forces and Russian-backed rebels. With Europe’s fears growing that Russia will invade Ukraine, natural gas prices are at close to double the level they traded at in late 2020. European nations are frantically seeking alternative supplies to Russian gas, which feeds 40 per cent of the European market.

Sales of previously owned homes unexpectedly increased to a one-year high as buyers rushed in ahead of a surge in mortgage rates, further depleting tight inventories to a record low. Contract closings increased 6.7 per cent in January from the prior month to an annualised 6.5 million, figures from the National Association of Realtors showed Friday. All four regions saw gains on a monthly basis. The median forecast in a Bloomberg survey of economists called for a 6.1 million annualised rate in January. “Buyers were likely anticipating further rate increases and locking-in at the low rates, and investors added to overall demand with all-cash offers,” Lawrence Yun, NAR’s chief economist, said in a statement Friday. “Consequently, housing prices continue to move solidly higher.” With American demand for homes still outstripping supply, the current pace of sales depends in large part on the availability of properties. January’s increase in sales came almost entirely from homes priced above US$500,000, and the recent spike in mortgage rates may temper future demand.

Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR

Singapore Strategy: Budget 2022 – Cascading wages and tighter labour conditions

Analyst: Paul Chew

– FY2021 overall fiscal deficit was S$5bn (0.9% GDP), below the estimated S$11bn. The difference came from stamp duty revenue (+$2.2bn), income tax (+S$1.0bn), GST (+S$0.7bn), lower expenditure (+S$3.9bn), investment returns (+S$0.8mn) offset by higher special transfers of S$3.0bn.

– Fiscal deficit in FY2022 is budgeted at S$3bn, or 0.5% of GDP.

– GST will be raised from 7% to 8% on 1 January 2023 and from 8% to 9% on 1 January 2024.

– Higher wages are expected from the implementation of progressive wage schemes, lower dependency ratio ceiling and higher qualifying salaries for foreign workers. Most impacted will be F & B retail, construction, marine and manufacturing sectors. The concern is that higher wages at the lower tier could have a cascading impact on the overall wages of a company. No mention of wealth taxes but higher tax rates imposed on residential properties and luxury cars.

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