Weekly Commentary: 22 November 2021 – 28 November 2021
Mixed returns from the major indices last week. Growth stocks as loosely represented by the NASDAQ Composite Index was leading with a 1.27% gain. The S&P 500 trailed behind with a 0.36% gain while the DJIA fared worst with a 1.29% loss. The STI returned a modest 0.14% in contrast with the Hang Seng’s loss of 1.1%. The S&P 500 sectors delivered mixed returns as well with the bottom three performers being Financials (-1.06%), Energy (-0.74%), and Materials (-0.67%). In the other hand, Consumer Discretionary (+2.42%), InfoTech (+1.8%), and Communication Services (+1.17%) had the best weekly rally.
The yield-curve steepened last week as both the U.S. 2-year Treasury yield decreased by 3 bp to 0.50% and 10-year increased by 6 bp to reach 1.59%. The 10Y-2Y US Treasury yield spread increased by 3 bp to 1.08%. Market sentiment is moderate as investors remained cautious amidst inflation fears and supply-chain problems. The global HY-IG spread expanded by 11 bp to 2.07% while the CBOE Volatility Index (VIX) increased by 130 bp to 17.59%, both are slightly above their 50-day exponential moving average of 2% and 17.38% respectively. 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 three 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 valued very generously.
The global REIT markets reported negative returns with the exception of Australia, HK, US, UK, and Germany. But the overall 12-month yield spreads remained positive and still favorable towards REIT’s forward total return. Back at home, the iEdge S-REIT Index gained 0.14% with the two top performing segments being Office (+1.12%) and Retail (+0.86%). The lagging segments in the other hand, were Hospitality (-2.15%) and Industrial (-0.5%).
S-REITs in the Office segment are great investment opportunity today. Most are relatively undervalued in terms of Price-to-BV and Price-to-NAV due to the current uncertainty in the market. This provides room for growth as Office average dividend yield of 6.5% is also the best across all segments. The pandemic situation is stabling and we saw a decrease in infections as the 7-day moving average of total COVID-19 cases fell to 2105 from 2919 the previous week. The Singapore government has also announced last week that the country will move into a transition phase where we will see more relaxed measures such as increased social gatherings and dining sizes, although WFH still remained as the default working arrangement. The long-term outlook remained positive as Singapore has stood by 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) and are planned to be extended to additional nine countries in 28th November (Finland, India, Indonesia, Malaysia, and Sweden) and 5th December (Qatar, Saudi Arabia and the United Arab Emirates). These are overall good news and will be a boost to the sectors still in recovery from the pandemic.
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