Weekly Commentary: 06 December 2021 – 12 December 2021
All of the major indices reported negative returns last week. Growth stocks as loosely represented by the NASDAQ Composite Index fared worst as it fell by 2.60% by Friday. The S&P 500 and the DJIA were trailing behind with a 1.18% and 0.76% slippage each. Both the STI and Hang Seng fell by 2.02% and 1.29% respectively. All S&P 500 sectors delivered negative returns as well with the bottom three performers being Consumer Discretionary (-3.86%), Communication Services (-3.83%), and InfoTech (-2.99%). In the other hand, more defensive sectors such as Utilities (-0.53%), Consumer Staples (-0.83%), and Industrials (-1.17%) held up the best.
The stock market pullback was largely resulted from the fear that the more infectious Omicron COVID-19 strain could halt the global reopening plans and further delay economic growth. Furthermore, current high inflation has been far from transitory and Federal Reserve’s chairman Powell had also stated last week that the Fed may consider tapering bond purchases at faster pace, potentially shorten the timeline for the increase of short-term interest rates. 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. High inflation usually demands an increase in interest rates and this is not good news for stocks that had been valued very generously.
The yield-curve flattened last week as the U.S. 2-year Treasury yield increased by 9 bp to 0.59% and 10-year decreased by 13 bp to reach 1.34%. The 10Y-2Y US Treasury yield spread decreased to 0.75%, the lowest point of this year so far. Market sentiment was weak overall as the global HY-IG spread contracted by 17 bp to 2.26% while the CBOE Volatility Index (VIX) increased by 205 bp to 30.67%, both are well above their 50-day exponential moving average of 2.06% and 19.98% respectively.
The global REIT markets reported negative returns overall as well. 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 slipped by 1.20% with two sectors that fared best being Office (+0.08%) and Diversified (-0.15%). Currently, Office and Diversified offered the best room for growth. Both have the best average yield of 5.5% to 6% respectively among all the other S-REIT sectors while being quite fairly valued in terms of Price-to-Book or Price-to-NAV. The underperforming sectors in the other hand, were Retail (-2.92%) and Hospitality (-1.78%).
The Omicron strain did introduce more uncertainty to the recovery of the sectors that had been largely affected by the pandemic for the past two years. More than 50 countries have stepped up border controls to slow the spread. Singapore is also freezing all new vaccinated travel lanes (VTLs) and relaxation on social measures. The VTLs launch with Qatar, Saudi Arabia and the United Arab Emirates are currently deferred until further notice. Virus development will need to be further observed in order to identify the right time for a recovery play. In a positive note however, the pandemic situation is stabling back at home and we saw a decrease in infections as the 7-day moving average of total COVID-19 cases fell to 1149 from 1613 the previous week.
This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.
An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.
Investments are subject to investment risks including the possible loss of the principal amount invested, and are not obligations of, deposits in, guaranteed or insured by PCM or any of its subsidiaries, associates, affiliates or PDs. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved. Any use of financial derivative instruments will be for hedging and/or for efficient portfolio management. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products. The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.
The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.
The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. This advertisement has not been reviewed by the Monetary Authority of Singapore.