Weekly Commentary: 07 March 2022 – 13 March 2022
Negative returns reported by all of the major stock market indices last week due to the worsening situation in Ukraine with possible nuclear forces coming into play by Russia. Growth stocks as loosely represented by the NASDAQ Composite (-2.76%) fared worst while the DJIA (-1.23%) and the S&P 500 (-1.24%) trailed closely behind. We saw mixed returns from all of the S&P 500 sectors, with the bottom three sectors being Financials (-3.40%), Consumer Discretionary (-3.20%), and InfoTech (-2.85%). In the other hand, Energy (+6.57%), Utilities (+4.42%), and Real Estate (+3.60%) delivered the best performance due to the surging oil and gas prices and the current volatile climate. Closer to home, both the STI (-2.05%) and Hang Seng (-3.79%) also experienced significant decline for two consecutive weeks.
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 sporadic pandemic outbreaks. 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 and the aftermath from the Russia-Ukraine conflict, resulting in a punishing correction and high volatility in the stock market for the past few weeks.
The yield-curve flattened for two consecutive weeks as the 10Y-2Y US Treasury yield spread fell by 17 bp to 0.25%. Both the U.S. 2-year and 10-year Treasury yields had fallen by 1 bp to 1.48% and 17 bp to 1.73% respectively. The stock market sentiment remained weak and volatile as the global HY-IG spread contracted slightly by 2 bp to 2.46% while the CBOE Volatility Index (VIX) surged by 439 bp to 31.98%. Both are well over to their 50-day exponential moving average of 2.26% and 25.47%.
As can be seen below, weekly performance from the global REIT markets were mixed although 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 (+1.64%) and all of the S-REIT sectors reported positive returns. The two S-REIT sectors that had performed the best were Healthcare (+2.94%) and Industrial (+2.12%). The lagging sectors the other hand, were Retail (+0.65%) and Office (+1.61%). This could be attributed to the currently high number of cases that are putting pressure in the healthcare sector. The 7-day moving average of total COVID-19 cases largely unchanged from the previous week at around 18 thousand. Last week, the Singapore government had postponed again the streamlined COVID-19 measures due to the same reason.
However, there is no change in the COVID policy stance from the Singapore government that is in favour of reopening. Last week, it has been announced that in mid-March, Singapore will launch new quarantine-free VTLs with Greece and Vietnam and also expand the scheme to Penang in Malaysia, Bali in Indonesia and all cities in India. VTL quotas are also being 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 is delaying the pace and the supporting indicators are currently still weak. For example, 57 thousand 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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