Weekly Commentary: 03 January 2022 – 09 January 2022
Mostly positive returns all of the major indices last week. Growth lagged value as the NASDAQ Composite slightly slipped by 0.04% while the S&P 500 and the DJIA gained 0.87% and 1.08% each. Mixed weekly return for the S&P 500 sectors with the top three performers being Utilities (+2.15%%), Real Estate (+1.73%), and Financials (+1.46%), while Communication Services (-1.68%), InfoTech (-1.67%), and Energy (-1.13%) formed the bottom three sectors. For the year of 2021, the S&P 500 delivered the best return at 28.68%, followed by the NASDAQ Composite’s 22.21% and DJIA’s 20.95% respectively. Energy (+54.39% YoY) and cyclical sectors such as Real Estate (+46.14% YoY) and Financials (+34.87% YoY), outperformed in the year highlighted by the energy crunch, high inflation, and rising interest rate. In the other hand, defensive sectors such as Utilities (+17.67% YoY) and Consumer Staples (+18.63% YoY) lagged the rest. The Hang Seng’s 0.75% edged out the STI’s 0.5% last week. However, the STI (+14% YoY) outperformed Hang Seng (-11.45% YoY) by the end of 2021.
Moving forward in the new year, high inflation and rising interest rate will remain as a concern for the market due to rising energy prices and supply chain disruptions. The rising number of infections globally due to the Omicron variant will further slowed the recovery pace as well. The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) indicated that the inflation rate by the end of November has increased by 0.6% to reach 6.8%, the highest since 1982. Many are fearing that this will force the Fed’s hands in raising benchmark interest rate at a faster pace as 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 both the U.S. 2-year and 10-year Treasury yield increased by 4 bp and 2 bp to reach 0.73% and 1.51% respectively. The 10Y-2Y US Treasury yield spread contracted slightly to 0.78%. Stock market sentiment was strengthening as the global HY-IG spread widened by 4 bp to 1.91% while the CBOE Volatility Index (VIX) decreased by 74 bp to 17.22%. Both are still lying well below their 50-day exponential moving average of 2.03% and 19.78%.
As can be seen below, the global REIT markets reported positive returns all around. 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 1.59% with two sectors that performed the best being Hospitality (+2.63%) and Healthcare (+2.45%). The lagging sectors in the other hand, were Retail (+1.60%) and Industrial (+1.65%). In 2021, the best performing S-REIT sectors were Healthcare (+40.69% YoY) and Diversified (+17.33% YoY) while the bottom two sectors were Hospitality (-0.07% YoY) and Retail (+4.13% YoY). Currently, Office and Diversified offered the best room for growth. Both have the best average yield of 5.5% to 5.8% respectively among all the other S-REIT sectors while being quite fairly valued in terms of Price-to-Book or Price-to-NAV.
Back at home, we saw an uptrend in infections as the 7-day moving average of total COVID-19 cases rose to 329 from 275 the previous week. The Omicron variant had brought in a new wave of the pandemic and saw many countries tightening their restrictions to curb the spread. So far, more than 50 countries have stepped up border controls to slow the spread and Singapore had also stopped all new vaccinated travel lanes (VTLs) destinations 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 closely observed in order to identify the right time for a recovery play as the new variant will likely delay the pace moving forward.
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