Weekly Commentary: 15 November 2021 – 21 November 2021
Mostly negative returns from all the major indices last week after a five-week positive rally. Growth stocks as loosely represented by the NASDAQ Composite Index fared worst with a 0.68% slippage. The DJIA and S&P 500 were not far behind with a 0.56% and 0.27% weekly loss each. The Hang Seng Index gained 1.88% in contrast with the STI’s loss of 0.24%. The S&P 500 sectors delivered mixed returns overall with the bottom three performers being Energy (-2.19%), Consumer Discretionary (-1.81%), and InfoTech (-0.39%). In the other hand, Materials (+1.33%), Consumer Staples (+0.74%), and Utilities (+0.74%) made up the top three best performing sectors.
The yield-curve flattened slightly as both the U.S. 2-year and 10-year Treasury yield increased by 14 bp to 0.53% and 13 bp to 1.53% respectively. The 10Y-2Y US Treasury yield spread dropped slightly to 1.05%. Market sentiment remained strong by Friday as both the global HY-IG spread and Volatility Index (VIX) tightened by 2 bp to 1.96% and 19 bp to 16.29% respectively. Both were still lying below their 30-day moving average of 2.03% and 17.38%, although the VIX briefly went over the moving average on Wednesday. The volatility surge and last week stocks slippage could be attributed to market reaction on the release of inflation data. The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) indicated that the inflation rate by the end of October has increased by 0.6% to reach 6.2%, the highest since the 2008 GFC. Despite the Fed’s seemingly dovish stance two weeks ago, market was concerned as rising inflation usually demands an increase in interest rates and this is not good news for stocks that had been priced very generously.
The global REIT markets reported negative returns as well with the exception of HK, Thailand, US, and the UK. But the 12-month yield spreads remained positive overall and still favorable towards REIT’s forward total return compared to other asset classes. Back at home, the iEdge S-REIT Index slipped by 0.3% with positive returns from the top two S-REIT sectors – Healthcare (+0.4%), and Retail (+0.26%). The lagging segments in the other hand, were Industrial (-0.85%) and Office (+0.4%). The 7-day moving average of total COVID-19 cases fell slightly to 2919 from 2949 the previous week.
Although the pace of recovery going forward will dictate the rebound, S-REITs in the Hospitality, Office, and Retail segment are great investment opportunity 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. 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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