DAILY MORNING NOTE | 26 June 2023

Week 26 equity strategy: Central banks in developed countries are still lining up to tame inflation with aggressive rate hikes. Bank of England raised interest rates by 50 basis points (bps) to 5%. Following suit, Norway increased rates by 50 bps to 3.75% and Switzerland by 0.25% to 1.75%. Meanwhile, US Fed chair Powell strongly suggested that additional rate hikes are to be expected. He commented that the process of getting inflation back down to 2% has a long way to go. And it is appropriate to raise interest rates somewhat further by the end of the year. Fellow FOMC member M. Bowman echoed his view that additional rate increases will be necessary. Barring any spectacular drop in July inflation, the likelihood of rate hikes remains high in the US. Higher for longer interest rates will only exacerbate the current economic weakness.

In contrast we think China is on an opposite trajectory in the economic cycle. It recently trimmed its 1-year loan prime rate (which banks charge best clients) by 10bps to 3.55%. The State Council also has plans for a stimulus package for the property and consumer sector. While the growth in China may be slower than expected, the recovery post-Covid is still progressing. This rebound is further supported by expansionary monetary and fiscal policies. Hospitality is a sweet spot with outbound travel in China only 15% of pre-pandemic levels. Stocks we favour which benefit from a recovering China include CapitaLand Investment and Sasseur REIT.

Paul Chew
Head of Research
paulchewkl@phillip.com.sg

Singapore stocks ended the week lower on Friday (Jun 23), falling 1 per cent or 30.83 points to 3,191.6. Declines were led by Seatrium, which fell 3.1 per cent or S$0.004 to S$0.125. Yangzijiang Shipbuilding was also one of the top decliners, falling 3 per cent or S$0.04 to S$1.28. The trio of local banks closed lower on Friday. DBS fell 1.2 per cent or S$0.39 to S$31.43; OCBC lost 0.6 per cent or S$0.07 to S$12.32; and UOB ended 0.2 per cent or S$0.06 lower at S$27.99.

US stocks closed lower on Friday (Jun 23), capping a week dominated by Federal Reserve chairman Jerome Powell’s testimony, in which he signalled more interest rate hikes ahead but vowed the central bank would proceed with caution. All three major US stock indexes lost ground in a broad sell-off. Interest-sensitive mega-cap stocks weighed heaviest on the tech-laden Nasdaq composite index, led by Microsoft, Tesla and Nvidia. The Dow Jones Industrial Average fell 219.28 points or 0.65 per cent to 33,727.43, the S&P 500 lost 33.56 points or 0.77 per cent at 4,348.33 and the Nasdaq Composite dropped 138.09 points or 1.01 per cent to 13,492.52.

SG

Yangzijiang Shipbuilding (Holdings) has secured a contract from repeat customer Klaveness Combination Carriers to build three 83,300 dwt vessels for delivery in 2026, the company announced on Sunday (Jun 25). No contract value was disclosed. The order comes after Yangzijiang delivered eight combination carriers to the customer between 2019 and 2021.

The offeror for Challenger Technologies who intends to take it private has garnered more than 90 per cent of the total shares of the consumer electronics retailer, resulting in the public float of the shares dropping to under 10 per cent. Following this, Challenger Technologies may be suspended from trading, based on listing rules. The counter closed unchanged at S$0.60 – the revised offer price – on Friday, before the announcement on the public float was made.

ESR-Logos Reit is divesting seven industrial properties in Singapore and Australia for about S$337 million in total. The manager expects net proceeds after divestment costs for all seven properties to be S$322.4 million. The net proceeds may also be recycled to fund higher-quality new-economy assets and upcoming asset-enhancement initiatives and redevelopment works, said the manager.

Boustead Projects will be redeveloping a logistics and manufacturing facility in Tuas with two accredited investors, who were not named in the bourse filing it made on Friday (Jun 23). The company said the redevelopment of the facility will allow it to tap the logistics and selected manufacturing market where there is good demand and limited supply for high quality logistics and warehousing facilities. For the purposes of the joint redevelopment, Boustead Projects has entered into an agreement with the two investors to sell them units in the Boustead Real Estate Fund for S$8.9 million. Boustead Real Estate Fund is a private trust and therefore its securities are not available for subscription by the public, including Boustead Projects shareholders.

Amazon will invest an additional US$15 billion in India, the company’s chief executive officer Andy Jassy told Prime Minister Narendra Modi in his meeting on Friday (Jun 23). The investment will take the e-commerce giant’s total India investment across all businesses to US$26 billion by 2030, he said. This announcement follows Amazon’s cloud computing unit Amazon Web Services saying last month it will invest 1.06 trillion rupees (S$17.5 billion) in the country by the end of 2030.

US

Nvidia is “extremely likely” to invest in Europe, chief executive officer Jensen Huang said. Huang met the European Commissioner Thierry Breton as part of the latter’s discussions about content moderation and artificial intelligence with some of the largest tech companies in Silicon Valley. Nvidia will also look to invest in Europe, Huang said, and Breton invited Huang to continue the discussion in Brussels next month.

Microsoft executive vowed in court that after the company’s US$69 billion acquisition of Activision Blizzard, Call of Duty will remain available on rival Sony’s PlayStation devices, countering the US Federal Trade Commission’s (FTC) claim that the purchase would thwart competition in the console gaming market. Microsoft claims its incentive in buying Activision is to gain a foothold in the lucrative mobile gaming market. “This deal has nothing to do with increasing” Microsoft Xbox’s share in the console market, Phil Spencer, who heads Microsoft Gaming, testified. The deal, which has a closure deadline of Jul 18, could be wrecked if the court rules in FTC’s favour.

Malaysian authorities said on Friday (Jun 23) they will take legal action against Facebook parent company Meta Platforms for failing to remove “undesirable” content on the social media platform. Facebook has recently seen a significant volume of undesirable content relating to race, royalty, religion, defamation, impersonation, online gambling and scam advertisements, the Malaysian Communications and Multimedia Commission said in a statement. It also said Meta had failed to take sufficient action despite its repeated requests and that legal action was necessary to promote “accountability for cybersecurity” and for “enhancing consumer protection”.

IBM is nearing a deal to acquire software company Apptio for about US$5 billion, citing people familiar with the matter. A deal between the companies could be completed over the weekend, adding that it was unclear whether the purchase price includes debt. Apptio provides products including cloud-based and hybrid business management software, a possible asset for technology giant IBM.

Goldman Sachs Group has reportedly started cutting managing directors across the globe as the firm reduces its headcount amid a deals slump. About 125 managing directors, including some in investment banking, will lose their jobs, said one of the people familiar with the matter. Not all the layoffs have happened yet, the people said.

3M has agreed to pay as much as US$12.5 billion over 13 years to resolve claims that so-called forever chemicals it manufactured for decades polluted drinking water supplies across the US. The deal announced on Thursday (Jun 23) resolves current and future claims by municipal water authorities over per-and polyfluoroalkyl substances, known as PFAS. Under the agreement, 3M will pay a minimum of US$10.5 billion and as much as US$12.5 billion. The final amount depends on how much PFAS is found in water systems that haven’t been tested yet. The deal is a significant milestone that resolves a portion of what analysts have estimated could be tens of billions of US dollars in potential liabilities stemming from 3M’s legacy of manufacturing PFAS chemicals. The company said it plans to take a US$10.3 billion pre-tax charge in the second quarter.

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

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