Bitter Feud Being Witnessed in this Education Counter

Not much has changed in the past seven days.

Ships are still backed up at leading ports around the world. Prices of everything from food to energy, and raw materials to industrial components have been steadily rising.

Inflation continues to be a threat, prompting central banks to consider hiking interest rates. The key 10-year Treasury yield is at 1.65 per cent - its highest levels in more than six months.

On the other hand, the primary positive for the market has been better than expected earnings. And Wall Street seems to be running up on this.

Market Performance

The Dow Jones index ended Friday with a net 382.26 points or 1.08 per cent gain for the week at 35,677.02, boosted by generally strong third quarter earnings season in the US.

Meanwhile the broader S&P500 index closed the week at 4,544.9, a 73.51 points or 1.64 per cent uptick. The tech-heavy Nasdaq, despite being weakened by Snap’s weaker than expected earnings, gained 192.81 points or 1.29 per cent to end Friday’s session at 15,090.2 points.

The Singapore market’s benchmark Straits Times index gained 31.23 points or 1 per cent for the week at 3,205.14 points.

The STI index is now up more than 4 per cent from its October 1 low. Given that we are well into the final quarter, it might be useful to recap the general performance of the Singapore market.

Solid Gain for STI Index for the Past 1 Year

According to the Singapore Exchange, there are 89 primary listed stocks on the SGX with a market capitalisation above S$1 billion, of which 29 are in the S-Reits and Property Trust segment. The median dividend yield of these 89 stocks stands at 3.9 per cent, in line with the ST index’s 3.8 per cent.

Meanwhile the STI index itself is up some 34 per cent over the past year.

What this says is that, despite the naysayers, the Singapore market delivers a remarkably strong return on investment.

The best performance year-to-date have been iFAST, Golden Energy & Resources, The Hour Glass, Singapore Press Holdings and Thomson Medical, while the highest yields have come from Pacific Century, Regional Developments, Japfa, Riverstone Holdings, Sasseur REITS and Prime US REITS.

Meanwhile, net institutional inflows into Singapore bluechips led primarily by the banks and large caps, has remained strong.

The One Company that Captured this Week’s Headline – Raffles Education Corporation

But the biggest story on the market during the past week was a stock which is neither a bluechip nor a bank.

Market watchers were agape as Raffles Education Corporation was caught up in a bitter feud between its chairman/CEO Chew Hua Seng and substantial shareholder Oei Hong Leong, which ended with the company's directors being questioned by regulatory authorities and the Commercial Affairs Department.

The stock plummeted to new lows as Mr. Oei dumped 39 million units at an average price of 6.9 cents, prompting a two day trading halt. On Friday it attempted a somewhat tentative 1 cent recovery to 7.1 cents but is still trading at less than a quarter of its price three years ago. More drama could unfold over the weeks or months to come, say market watchers.

Temporary Relief for China Evergrande with the Latest Interest Payment

Meanwhile, there was some good news from China’s troubled Evergrande, which avoided default on its bond interest payments before its payment deadline. But more deadlines are coming, so this drama is by no means over yet.

But Vasu Menon, executive director for investment strategy at OCBC Wealth Management noted that Chinese authorities have in recent days allayed investors’ concerns and tried to contain the fallout from the Evergrande debt crisis.

“The result was a dramatic turnaround in Chinese markets last week, with a high-yield credit index heading for its biggest gain in 18 months, while some beaten up stocks in the tech and property space posted strong gains,” he noted. “China’s top financial regulator also said last week that he expects to achieve significant progress in the ongoing crackdown on fintech firms before the year-end, igniting hope that China’s regulatory crackdown of tech giants may be receding.”

Investors have started snapping up beaten-down Chinese tech stocks in recent weeks with the Hang Seng Tech Index up about 15 per cent in the past three weeks.

Market Remains Focused on Federal Reserve’s Decision

Meanwhile, the market remains focused on the Federal Reserve’s decision to scale back its massive bond buying programme, which has so far provided the liquidity fueling the market.

Since June 2020, the Fed has been buying $80 billion of Treasury securities and $40 billion of agency mortgage-backed securities each month.

But the Fed’s Jerome Powell tried to play down fears.

“It is time to taper, not raise rates,” he said, suggesting the current inflationary pressures were transitory. “At the same time, we think we can be patient and allow the recovery to take place and allow the labour market to heal.”

No Significant Improvement in Global Supply Chain Crunch

Meanwhile, there are no signs of abatement on the global supply chain crunch front.

While the first signs of this came several months ago with the semiconductor chip shortage, this tightening is now spreading to other sectors, including raw materials, energy and food. Oil price has already surpassed 7 year highs, while the price of coal is soaring amid demand from energy hungry China.

But there are several immediate positives supporting market sentiment, analysts say.

“The upbeat start to the US third-quarter earnings season is helping counter concerns about rising energy costs, supply chain pressures, and signs of an uptick in global COVID-19 cases,” noted Kelvin Tay, chief investment strategist for Asia Pacific at UBS. “Equities were boosted by another batch of strong corporate results. So far this reporting season, 82 per cent of S&P 500 companies are beating earnings expectations. Around 45 per cent of financials have reported results, with 83 per cent of them beating expectations.”

The Week Ahead – Key Data/Event to Look Out for

With inflation remaining a key concern, the market will be keeping a close watch over the US PCE Deflator index for September due on Friday, which is what the Fed uses to gauge inflation. Analysts are expecting the index to show a modest pick up in inflation to 4.4 per cent from 4.3 per cent in August, significantly above the Fed’s 2 per cent average target.

The advanced estimate of the US third quarter GDP growth rate on Thursday is another data that will be scrutinized for the extent of US economic slowdown due to the delta variant and supply chain constraints. Consensus estimates expect quarter-on-quarter growth to slow down from 6.7 per cent in the second quarter to 2.4 per cent in the third quarter.

Elsewhere, a heavy earnings week will offer more insights about how badly companies have been affected by supply chain issues and could cause some market volatility in the week ahead. Amongst the upcoming big results - Facebook reports quarterly results on Monday, followed by Visa on Tuesday and Apple on Thursday.

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