Weekly Commentary: 08 November 2021 – 14 November 2021
As can be seen below, positive gains from most of the major indices for five consecutive weeks. All three major indices reached record high as growth as loosely represented by the NASDAQ Composite led with a 3.08% gain while the S&P 500 and DJIA trailing behind with a 2.03% and 1.43% gain each. The STI’s increase of 1.48% edged out Hang Seng’s 2% slippage. Market sentiment was strong last week as the global HY-IG spread contracted slightly by 2 bp to 1.98% and CBOE Volatility Index (VIX) rose by 22 bp to 16.48%. Both remained below their 30-day moving average of 2.04% and 18.08% respectively. Most of the S&P 500 sectors also delivered positive returns with the exception of the bottom three performers – Financials (-0.69%), Healthcare (-0.49%), and Energy (-0.25%). In the other hand, the best performing sectors were Consumer Discretionary (+3.49%), InfoTech (+3.47%), and Materials (+2.96%).
The yield curve flattened again as both the U.S. 2-year and 10-year Treasury yield slipped by 8 bp to 0.40% and 10 bp to 1.45% respectively. The 10Y-2Y US Treasury yield spread dropped to 1.05% by Friday. The drop in yields seemed to be the major contributor of growth stocks outperformance and Financials slippage as they tend to reduce the banks’ Net Interest Margins. 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. However, the Fed’s policy meeting seemed to project a more dovish stance and alleviated prior market fears of abrupt rate hike. It was stated that the Fed’s policymakers will need to see further labor market improvement before raising interest rates and they are still expecting the high inflation to moderate.
The global REIT markets reported positive gains mostly with the exception of HK, Malaysia, and Thailand. But the 12-month yield spreads are positive overall as well and still favorable towards REIT’s forward total return. Back at home, the iEdge S-REIT Index returned 0.47% with mostly positive returns from all the S-REIT sectors – Healthcare (+2.57%) and Office (+1.06%) performed the best for two consecutive weeks while Retail (-0.36%) and Industrial (+0.6%) lagging behind.
The 7-day moving average of total COVID-19 cases fell slightly to 2949 from 3777 the previous week, still around 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, The long-term outlook remained positive as the Singapore Government has also reiterated its plan to stay connected to the world with effective COVID-19 safeguards and border restrictions going forward. This includes the vaccinated travel lanes (VTLs) that currently available for 13 countries – Brunei, Canada, Denmark, France, Germany, Italy, the Netherlands, Spain, the United Kingdom, the United States, Australia, Switzerland, and South Korea (from 14th November). VTL quota of 3,000 travellers daily will be increased as well to 4,000 daily later this month. These are overall good news and will be a boost to the sectors still in recovery from the pandemic.
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