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Weekly Outlook

Weekly Outlook 21 February 2022 – 27 February 2022

Weekly Commentary: 21 February 2022 – 27 February 2022

The stock market slumped for two consecutive weeks over Russia-Ukraine conflict. Relatively comparable negative returns reported by all three major indices. Value stocks as loosely represented by the DJIA (-1.77%) fared worst while the NASDAQ Composite (-1.73%) and the S&P 500 (-1.52%) trailing closely behind. Mostly negative returns from all of the S&P 500 sectors as well. Defensive sectors such as Consumer Staples (+1.42%) and Utilities (-0.42%), in addition to Materials(+0.66%) held up the best last week. In contrast, sectors such as Communication Services (-2.79%), InfoTech (-1.63%), and Energy (-2.13%) were hit the hardest last week. The STI (+0.08%), however, managed to stay resilient and edged out the Hang Seng (-2.32%) last week.

The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) had indicated that the U.S. inflation rate by the end of January had increased by 0.5% MoM to reach 7.5%. The average US inflation rate for 2021 was as 4.7%, the highest since 1990. Inflation is currently at the highest we have seen since 1982 and will likely remain in the high range in the near term due to the lingering global energy crunch and supply chain disruptions caused by the pandemic. Further escalation in the Russia-Ukraine conflict would also push fuel and food prices up. The high inflation has been the main driver for an increase in interest rate, which has been suppressed to stimulate economic growth during the pandemic for the past two years. Investors have been pricing in the upcoming rate-hikes, resulting in a punishing correction for the generously valued stock market in the past few weeks. A potential war would introduce more volatility as well moving forward.

The yield-curve steepened last week as the 10Y-2Y US Treasury yield spread expanded by 5 bp to 0.46%. Both the U.S. 2-year and 10-year Treasury decreased by 11 bp to reach 1.47% and 6 bp to reach 1.93% respectively. Stock market sentiment remained cautious and volatile as the global HY-IG spread slightly contracted by 1 bp to 2.47% while the CBOE Volatility Index (VIX) increased by 39 bp to 27.75%. Both are well over to their 50-day exponential moving average of 2.21% and 23.27%.

As can be seen below, weekly performance from the global REIT markets were mixed returns with Australia, Singapore, Malaysia, Thailand, and France REIT markets reported returns in the positive range. However, the overall 12-month yield spreads remained positive and still favorable towards REIT’s forward total return. The iEdge S-REIT Index (+2.41%) and all the S-REIT sectors had positive returns as well. The two sectors that performed the best were Hospitality (+4.45%) and Retail (+2.93%). The lagging sectors in the other hand, were Healthcare (+0.08%) and Office (+1.03%).

Back at home, we still saw an increase in infections as the 7-day moving average of total COVID-19 cases sharply rose to around 14.6 thousands from 10 thousands the previous week. No change in the COVID policy stance from the Singapore government that is in favour of reopening. It has announced that the new VTL with Hong Kong, as well as previously deferred VTLs with Qatar, Saudi Arabia and the United Arab Emirates (UAE), will soon be launched. VTL quotas will also be progressively restored and increased. Further development will need to be closely observed in order to identify the right time for a recovery play as Omicron will likely delay the pace moving forward and the supporting indicators are currently still weak. For example, 57 thousands inbound arrivals to the country in January is still significantly below pre-COVID range of 1.5-1.8 million visitors per month.

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