Weekly Commentary: 25 October 2021 – 31 October 2021
As can be seen below, positive gains from all of the major indices for three consecutive weeks. The S&P 500 led the big three with 1.66% weekly gain, while growth and value stocks as loosely represented by the NASDAQ Composite and the DJIA had a 1.30% and 1.12% increase each. The Hang Seng had a 3.15% increase compared to the STI’s 0.98%. Overall market sentiment seemed to be going strong as the global HY-IG spread tightened to 1.99% and CBOE Volatility Index (VIX) dropped to 15.4%, the lowest since the start of the pandemic last year. Most of the S&P 500 sectors also delivered positive returns with the exception of Communication Services (-1.32%). InfoTech (+0.76%) and Consumer Discretionary (+0.28%) were also the lagging sectors for the week. In the other hand, the best performing sectors were Healthcare (+3.63%), Utilities (+3.34%), and Real Estate (+2.99%).
The 10Y-2Y yield spread maintained at 1.18%. Both the U.S. 2-year and 10-year Treasury yield increased by 7 bp to reach 0.48% and 1.66% respectively. Inflation is worrying and lying on a level not seen since the global financial crisis in 2008. The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) indicated that the inflation rate by the end of September was back at 5.4% after dropping slightly to 5.3% in August. Furthermore, the Fed’s officials seemed to be divided on hiking the interest rate and the view of a transitory inflation from its September meeting minutes. On a positive note however, Biden’s infrastructure bill provided hope for fiscal stimulus and will likely exclude the earlier proposed increased corporate taxes.
Mixed returns from global REIT markets. But the 12-month yield spreads are positive overall as well and still favorable towards REIT’s forward total return. Back at home, mostly positive returns from the S-REITs sectors with Hospitality (+2.32%) and Diversified (+2.20%) delivering the best weekly gains while Retail (-0.12%) and Office (-0.11%) lagging behind. The underperformance can be attributed to the extension of COVID-19 restrictions announced last week.
The 7-day moving average of total COVID-19 cases rose sharply to 3413 from 3045 of the previous week, reaching over three times the peak last year. Although virus development and the pace of recovery going forward will dictate the rebound, S-REITs in the Hospitality, Office, and Retail segment are great investment opportunity for investors today. Most are undervalued In terms of Price-to-BV and Price-to-NAV due to the current uncertainty in the market and the long-term outlook remained positive as the Singapore Government has also reiterated its plan to stay connected to the world with effective safeguards and border restrictions going forward. This includes the vaccinated travel lanes (VTLs) that are to be extended to nine additional countries from Oct 19 – Canada, Denmark, France, Italy, the Netherlands, Spain, Britain and the United States.
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